How Will Getting a Store Card Affect My Credit?

Getting a deal is a great American shopping tradition. And applying for a credit card at the cash register to snag a discount can seem like a good idea.

But the reality is you may be impulsively signing up for a low-limit card that could hurt your credit.

Credit expert John Ulzheimer warns that opening a new store card could hurt your credit score by:

• Having an outsize impact on your credit usage, which is a big factor in credit scores

• Causing an inquiry on your credit

• Reducing the average age of your credit accounts

However, if you use store cards the right way, it can help you build credit.

Lower limit, higher credit usage

The credit limits on retail cards that you use only at one store or chain are typically about 10% of those on comparable general-use credit cards, Ulzheimer says.

How much of your credit limit you use has a major influence on your credit scores. The only thing that matters more is paying on time. Credit experts advise staying below 30% of the limit on any card. Consumers with the very best scores typically use less than 10%.

To keep your credit utilization low, credit card expert and author Beverly Harzog suggests paying your bill before the issuer reports the balance to the credit bureaus.

Call the customer service number on the card to find out when that is. Or get in the habit of making online payments as soon as you purchase something. That way, your charges never stack up.

A hard inquiry can ding your score

A retail card doesn’t just affect your scores by spiking your credit usage.

When you apply for new credit, you typically get hit with a hard inquiry when the issuer pulls one of your credit reports. A hard inquiry can stay on your credit report for about two years.

It helps the issuer assess whether to approve your application, and it can cause a small, temporary dip in your score.

Approval can lower credit age

The bigger problem comes if you’re approved. That new account causes the average age of your credit accounts to decrease. Credit age is a minor factor in scores, but every point counts.

Limited usability, limited services

On top of potentially hurting your credit scores, retail cards have usability issues. They’re good only at one store or retail chain, usually have high interest rates and typically have less robust security alerts than traditional cards. (Store-branded credit cards are different.)

You might be better off using a traditional credit card, especially if you have a rewards card that offers cash back on every purchase, not just the initial one.

When store cards are a good idea

Used carefully, store cards can be a good way to build credit. They often have more relaxed underwriting than general-use unsecured credit cards, so it can be easier to get approved. They may be a good fit for you if:

• You shop at the retailer often and want the rewards or discounts that come with the card

• You are interested in “preview sales” for cardholders

• You can keep balances low

• You want to take advantage of an interest-free repayment period

• You pay off your full balance every month

Resist making a snap decision to open a store card in the checkout line.

“Unless you’ve already researched this card and feel comfortable with the terms, just take a pass on it,” Harzog says.

And if you already have a store card? Don't close it — that also would hurt your average age of accounts. Better to use it lightly and pay on time. Managing a store credit card, along with a traditional credit card, also helps diversify your credit portfolio. These actions have a positive effect on your credit scores.