Store Credit Cards: Good or Bad for Credit?

It’s pretty tempting to sign up for store credit cards, isn’t it? I mean, they usually come with free offers or a certain percentage off your first purchase with the card, and you’re often offered the card after you’ve wandered the store and walked away from things you’d likely love to be able to purchase. When they ask you if you’d like to sign up, it’s pretty hard to say no. And should you?

There are upsides to having a store credit card, to be fair. First, they’re pretty easy to get approved for, especially as someone who is just starting out building their credit history. If you’re of age and your credit isn’t completely in the tank, you’ll likely be able to get one. You’ll also have the opportunity to use it to boost your credit score - store credit cards report to the credit bureaus just like any other credit card. If you use it wisely and keep it in good standing, you will be developing a good credit history and boosting your credit score. Depending on the card, you may also have added benefits, such as extra points in their loyalty programs or discounts on certain items or days.

All this, plus more spending power? Sounds like a great deal, right? Not so fast… we haven’t covered the cons yet.

A store credit card is going to have pretty high interest

In fact, interest on store credit cards is often higher than regular credit cards. If you hold a balance, you’re going to be paying astronomical amounts in interest alone - can you afford that?

A store credit card means another minimum payment

If you live pretty tight every month, can you really handle adding a whole new minimum payment? Sure, it’s one thing to say you’re not going to carry a balance, but will it really work out that way?

Store credit cards can destroy your credit utilization

These sorts of cards usually have a relatively small limit compared to your standard credit cards. If it’s the only credit card you carry, it’s going to be very easy to have your utilization percentage extremely high. For instance, if your store credit card has a limit of $500 and you’ve just used $400 of it, that’s a 90% utilization rate, which is way too high.

It’s easy to max out and find yourself in credit trouble with a store credit card

Again, because the cards issued by stores are more likely to have low limits, you can hit your limit with relatively low effort. This does not look good on your credit report and unless you get it paid down as soon as possible, your credit score could suffer.

Finally, you suddenly have a store full of goods you’d love to buy tempting you to spend. It can be the difference between living within your means and not.

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