Are you planning to apply for a store credit card? Get ready to dive into the world of store credit cards, how they affect your credit score, and whether it's a wise move for your financial health. The Flik Eco team has got your back, and we'll break down this complex topic into simple and relatable terms, as we always do. So, grab a cup of coffee, sit back, and let's explore the world of store cards together!
Credit Score For Store Cards Table of Contents
What Are Store Credit Cards?
Store credit cards are credit cards specifically issued by a retailer or a store. They can usually only be used for purchases at the specific store or a group of stores within the same retail chain. Many store credit cards offer perks and incentives like discounts, reward points, or special promotional financing. Examples of popular store credit cards include those from Target, Amazon, and Best Buy.
How Store Cards Affect Your Credit Score
While store credit cards may seem like a great deal on the surface, it's essential to understand how they can affect your credit score. Store credit cards are still credit cards, and they're reported to the credit bureaus just like any other credit card.
Credit Utilization
The impact of a store card on your credit score mostly depends on your credit utilization and the credit limit offered by the card issuer. Store cards typically have lower credit limits than traditional credit cards, which means your credit utilization could be higher.
Remember, credit utilization – the percentage of your available credit you're using – accounts for 30% of your credit score. So, keeping a low balance relative to your credit limit is critical for maintaining a healthy score.
Hard Inquiries
Applying for a store card will result in a hard inquiry on your credit report. A hard inquiry occurs when a lender reviews your credit report before deciding whether to extend credit to you. The impact of hard inquiries on credit scores varies but could bring your score down by a few points. They also stay on your report for two years but only impact your score for one year.
Payment History
As with any credit product, making timely payments on your store credit card is crucial for maintaining or improving your credit score. Payment history accounts for 35% of your credit score, so missing a payment or being consistently late can have a negative impact.
Length of Credit History and Credit Mix
Opening a new store card will also impact your length of credit history and credit mix. Length of credit history (15% of your credit score) is affected by the average age of your accounts. Adding a new account can potentially lower your average account age, which could impact your score.
Credit mix accounts for 10% of your score and refers to the variety of credit types you have, such as credit cards, loans, and mortgages. Having a store card among other credit types could help improve your credit mix, thus positively affecting your credit score.
Credit Score For Store Cards Example:
Let's say you're shopping for a new TV at a popular electronics retail store. As you're checking out, the sales representative offers you a store credit card, highlighting its perks like the 10% discount off your purchase, reward points, and a 0% interest rate for the first six months. It sounds tempting, but here's what you should consider before taking the plunge:
1. How much of a credit limit do they offer? If it's lower than other credit cards, be mindful of your spending to keep your credit utilization under control.
2. Can you commit to making timely payments? A store card is only beneficial to your credit score if you can pay the balance off on time.
3. Does adding another card make sense to you? Consider how it fits into your overall credit picture and if it could negatively impact your average account age or credit utilization.
4. Are the perks and incentives worth it, or are there alternative cards or strategies that better align with your financial goals?
Now that you've familiarized yourself with store credit cards and their impact on credit scores, it's time to make an informed decision. Ensure you weigh the pros and cons of that shiny store credit card before applying, keeping in mind your credit score and financial health.
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