How Can Opening a Store Card Affect Your Credit?

Opening a store credit card, sometimes called a retail card, could be appealing if you’re looking for a discount on your holiday shopping or want help making a large purchase. Stores may offer big coupons and special financing to new cardholders, plus you may get ongoing discounts and extra perks. It may seem like a win-win. However, applying for a new store card isn’t always a good idea.


Learn how a store credit card could help or hurt your credit and when it might be a good idea to try for a non-store card instead.


There are two types of store cards

Store credit cards come in two varieties. You can use some store cards at any merchant that accepts credit cards, just like non-store credit cards. With other “closed-loop cards,” you can only use the card at the store.


Store cards tend to be easier to qualify for than non-store cards, which is why a store card can be a helpful tool if you’re trying to get a credit card to help you build or rebuild your credit. Just like with non-store cards, the card issuers generally report your account and activity to the three major credit bureaus — Equifax, Experian, and TransUnion.


The exact impact on your credit scores will depend on your overall credit profile and how you use the card. However, here are a few of the ways that opening a store card could affect your credit.  


3 ways store cards could help your credit

There are a couple of ways that opening a store card could help your credit:


  • You could build a good credit history. Having an account with a long history of on-time payments can help your credit scores. This won’t happen overnight, but the only way to start is by opening a new account and making a habit of paying your monthly bill on time.
  • Add a new account to your credit reports. Your mix of accounts is minor credit-scoring factor. Even so, adding a credit card to your credit profile could help your credit scores, especially if you don’t have any open credit card.
  • Increase your overall credit limit. Opening a new card can also increase your total available credit, which can play into your utilization rate — the percentage of your available credit that you’re currently using. This is an important factor in determining your credit scores, and a low utilization rate is often best.


3 ways store cards could hurt your credit

A store card may also hurt your credit scores, although some of the initial drops may be short-lived:  


  • Your application could lead to a hard inquiry. When you apply for a new account, the creditor may pull your credit report and a credit score to determine your eligibility, rates, and terms. A hard inquiry — a record of the credit pull — could stay on your credit reports for two years and lower your credit scores for up to a year. However, a single hard inquiry tends to only have a small impact which dissipates within a couple of months.
  • A new account lowers your average age of accounts. Opening a new credit account can lower the average age of accounts in your credit report. While this is a relatively minor credit-scoring factor, a higher average age of accounts is best for your credit scores.
  • Store cards tend to have high APRs and low credit limits. While increasing your overall credit limit may lower your utilization rate and help your credit scores, store cards tend to have a low credit limit and high annual percentage rate (APR). As a result, it could be easy to use a large percentage of your available credit, leading to a high utilization rate which could hurt your scores. If you start revolving a balance, the card’s high APR could also make it difficult to pay off the card in full.


When might it make sense to open a store card?

Credit scoring aside, there’s more to consider before applying. A store card might be a good fit if:


  • You frequently shop at the retailer.
  • You’ll benefit from the cardholder benefits.
  • You don’t think you’ll be able to qualify for a non-store card.
  • You won’t purchase more than you can afford to pay off in full each month.


If these don’t describe your situation, a standard rewards card or a credit card with a 0-percent introductory offer might be a better fit, particularly during busy buying periods like the holiday season.


With a standard rewards card you may be able to earn cash back, miles, or points no matter where you shop, letting you search around for the best deals rather than feeling constrained to one store. There are even secured credit cards that offer rewards programs and may be a good fit if you’re working to improve your credit.


For large purchases, a card with an introductory offer for 0% APR on purchases might be best. Some store cards have these financing offers, but non-store cards may have better terms.


For example, with some store cards, if you don’t pay off your balance by the end of the introductory period, you may have to repay all of the interest that would have accrued during the promotional period. With non-store cards, your balance may start to accrue interest once the promotional period ends, but you generally don’t have to pay any deferred interest.


No matter which type of card you choose, applying and opening a new account could initially lead to a drop in your credit scores. Keeping your account open, only using a small percentage of your available credit limit, and paying your bill on time could help you build (or rebuild) your credit in the long run.

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