Can I Build Credit with a Store Credit Card? Complete Answer Inside
Can I Build Credit with a Store Credit Card? An Overview of the Benefits and Risks
In today’s world, credit has become a significant part of our lives. Whether it is buying a car, a house or simply using a credit card to make a purchase, good credit is essential.
One way that people attempt to build their credit is by using store credit cards.
Store credit cards are becoming more and more popular, and they offer a unique way to build credit through exclusive discounts, rewards, and financing. Some popular examples include the Burlington Credit Card, the Famous Footwear Credit Card, and the Salon Centric Credit Card.
But are they a good option for building credit? In this article, we will explore the benefits and risks of using store credit cards to build credit.
Understanding Store Credit Cards
What is a Store Credit Card?
A store credit card is a credit card that is issued by a retailer and can only be used at that retailer’s stores or online. These cards are often easier to obtain and have lower credit requirements than traditional credit cards. They can be a great tool for building credit, especially for those who have limited or no credit history.
Store credit cards are a great option for those who are just starting out with credit. They usually offer lower credit limits, which can help prevent overspending and encourage responsible credit use. Additionally, many store credit cards offer rewards programs that can provide cash back, discounts, or other perks for using the card.
Types of Store Credit Cards
There are two types of store credit cards. The first type is a closed-loop card, which can only be used at the retailer that issued it. These cards are typically easier to obtain than open-loop cards and may offer more rewards or discounts specific to that retailer. Closed-loop cards can be a great way to save money on purchases at your favorite stores.
The second type of store credit card is an open-loop card, which can be used anywhere that accepts that type of credit card, such as Visa or Mastercard. These cards often come with higher credit limits and lower interest rates than closed-loop cards, but may not offer as many rewards or discounts specific to the retailer.
How Store Credit Cards Differ from Traditional Credit Cards
Store credit cards differ from traditional credit cards in a few ways. First, they typically have higher interest rates and lower credit limits, making them riskier for the issuer. They also tend to be easier to obtain and have lower credit requirements. Additionally, store credit cards often come with exclusive discounts, rewards, and financing options that are not available with traditional credit cards.
Traditional credit cards may offer more flexibility in terms of where they can be used, but they can also come with higher fees and stricter credit requirements. Store credit cards can be a great option for those who are just starting out with credit or who want to take advantage of exclusive rewards and discounts at their favorite retailers.
Key Differences Between Fixed and Variable Rate Credit Cards
Building Credit with a Store Credit Card
Building credit is an essential part of financial stability and independence. One way to do this is by using a store credit card responsibly. Store credit cards are credit cards are issued by specific retailers, like the Athleta Credit Card offered by Athleta, and they often offer exclusive discounts and rewards to customers who use them. However, it is important to understand how store credit cards affect your credit score and how to use them responsibly to build your credit.
How Store Credit Cards Affect Your Credit Score
Using a store credit card responsibly can help build your credit score. Every time you make a purchase and pay it off on time, you are demonstrating good credit behavior. One of the most important factors that determine your credit score is your payment history, so it is crucial to make payments on time. Additionally, a store credit card can help you increase your available credit, which can improve your credit utilization ratio. This ratio is the amount of credit you are using compared to the amount of credit you have available. A lower credit utilization ratio is better for your credit score.
However, it is important to note that applying for too many credit cards, including store credit cards, can negatively impact your credit score. Each time you apply for a credit card, it results in a hard inquiry on your credit report. Too many hard inquiries can lower your credit score, so it is important to be selective about the credit cards you apply for.
Remember to keep this in mind, even if your excited to apply for a new card like the Cosmoprof credit card!
Responsible Use of Store Credit Cards for Credit Building
It is crucial to use your store credit card responsibly if you want to build your credit score. This means making payments on time and not overspending. It is also essential to keep your balance low since high balances can negatively impact your credit utilization ratio. Lastly, it is important to monitor your credit report for errors and ensure that all information is accurate and up-to-date.
One way to use a store credit card responsibly is to only use it for purchases that you would make anyway. For example, if you frequently shop at a particular store, using their store credit card for those purchases can be a good way to earn rewards and build your credit. For example, if you’re a big Rue21 shopper, it might be worth getting the Rue21 Credit Card. However, if you find yourself making unnecessary purchases just to earn rewards, it may be time to reevaluate your spending habits.
Additionally, some store credit cards can be used as a form of financing as a last-ditch option in an emergency. For example, if you need your car to get to work or school and need to make a repair, you might be able to finance the purchase using one of many tire and auto cards, like the Pep Boys Credit Card, the Plaza Tire Credit Card, or the America’s Tire Credit Card.
Potential Pitfalls of Relying on Store Credit Cards for Credit Building
Using a store credit card to build your credit score is not without risks. One of the most significant risks is overspending. Since store credit cards tend to offer exclusive discounts and promotions, it can be tempting to overspend. Additionally, store credit cards often have high-interest rates and fees, so if you do not pay off your balance in full every month, you could end up paying a lot in interest and fees. This can be especially easy to do at high end or luxury stores, like Arhaus, which offers the Arhaus Credit Card.
Another potential pitfall of relying on store credit cards for credit building is that they may not be as widely accepted as other credit cards. If you need to make a purchase and the retailer does not accept your store credit card, you may be forced to use another credit card or pay in cash, which can be inconvenient.
In conclusion, using a store credit card responsibly can be an effective way to build your credit score. However, it is important to understand how store credit cards affect your credit score and how to use them responsibly to avoid potential pitfalls. By making payments on time, keeping your balance low, and monitoring your credit report, you can use a store credit card to build your credit and achieve financial stability.
Benefits of Store Credit Cards
Exclusive Discounts and Promotions
One of the most significant benefits of store credit cards is the exclusive discounts and promotions they offer. These discounts can be significant and can save you a lot of money on your purchases. Additionally, many stores offer cashback or rewards programs, which can also be a great way to save money. For example, check out the Mattress Warehouse Credit Card.
Earning Rewards and Points
Many store credit cards offer rewards points or cashback for purchases made with the card. This can be a great way to earn additional savings or rewards, which can be used towards future purchases. Some store credit cards even offer bonus rewards points for purchases made with specific retailers. For example, check out the Banter Credit Card.
Financing Options for Larger Purchases
Store credit cards often offer financing options for larger purchases, such as furniture or appliances. This can be a convenient option, especially if you do not have the funds to pay for the purchase upfront. However, it is essential to read the terms and conditions carefully, as these financing options often come with high-interest rates and fees. For example, check out the AutoPass Credit Card or Tuffy Credit Card.
Risks of Store Credit Cards
High-interest rates are one of the most significant risks associated with store credit cards. These cards often have APRs that are much higher than traditional credit cards, which can result in high-interest charges if you carry a balance. Additionally, late fees and other charges can quickly add up, making it challenging to pay off your debt.
Limited Usability Outside the Store
Since store credit cards can only be used at a specific retailer, their usability is limited outside of that store. This can be a significant drawback if you need to make a purchase elsewhere but do not have another credit card to use.
Impact on Credit Utilization Ratio
Your credit utilization ratio is the amount of credit you are using compared to your available credit. Store credit cards often have lower credit limits than traditional credit cards, which can result in a higher credit utilization ratio. This can negatively impact your credit score, so it is essential to keep your balance low and pay off your balance in full each month.
Temptation to Overspend
Store credit cards often offer exclusive discounts and promotions, which can be tempting to overspend. If you are not careful, you could end up with a high balance and high-interest charges, which can be difficult to pay off. It is essential to be disciplined and only make purchases that you can afford to pay off in full each month.
Store credit cards can be a great tool for building your credit score, but they are not without risks. It is essential to use them responsibly, make payments on time, and avoid overspending. When used correctly, these cards can offer exclusive discounts, rewards, and financing options that can save you money on your purchases. Ultimately, the decision to use a store credit card to build your credit score is up to you, but it is crucial to understand the benefits and risks before making a decision.
Meet the author:
Editor & Author
Cathy Gresham is a finance whiz.
After earning her MBA from The Wharton School, she has worked in strategy at some of the world’s largest and most influential financial companies for 20+ years. Notably, she has worked for the biggest credit card issuers and networks and brings an insider’s perspective to how credit card products work behind the scenes.
Cathy is passionate about personal finance and investing, and loves helping people learn about these complex topics. Her wit and humor make learning about money fun, and she’s always happy to share her knowledge with others.
Cathy enjoys spending time with her family and friends when she’s not crunching numbers or developing investment strategies. She’s also an avid runner, and can often be found pounding the pavement on her morning jog.