Do Store Credit Cards Affect Your Credit Score?

Store credit cards are financial products offered by retailers for use at their specific stores or associated brands. They function much like general-purpose credit cards, allowing purchases on credit that are paid back over time. Many come with incentives such as discounts or rewards for shopping with the issuing retailer. However, their primary difference from standard credit cards often lies in their limited usability; some are “closed-loop” and only accepted at the issuing merchant, while others are “co-branded” and can be used more broadly.

Store credit cards affect your credit score. This impact can be both positive and negative, depending on how they are managed. Like any other credit account, their usage is reported to major credit bureaus, influencing credit scoring models.

Credit Score Components

Credit scoring models, such as FICO and VantageScore, evaluate several factors to assess a borrower’s creditworthiness.

Payment History

Payment history is the most significant factor, accounting for approximately 35% of a FICO score. It reflects whether payments on all credit accounts are made on time. Consistent, timely payments build a positive credit record, while late or missed payments can significantly damage a score.

Amount Owed (Credit Utilization)

The amount owed, or credit utilization, is another major factor, representing about 30% of a FICO score and 20% of a VantageScore. This is the percentage of available revolving credit currently used. Lenders generally prefer a credit utilization ratio below 30%.

Length of Credit History

The length of credit history considers the age of your accounts and their average age. A longer credit history with responsible usage reflects greater experience managing credit.

New Credit

New credit, including recent applications and new accounts, impacts a credit score. This factor assesses new accounts opened and hard inquiries on a credit report. A sudden increase in new credit applications can signal higher risk to lenders.

Credit Mix

Credit mix accounts for about 10% of a FICO score. This factor evaluates the diversity of credit accounts, such as revolving credit and installment loans. Demonstrating the ability to manage different types of credit responsibly can be seen favorably by scoring models.

Store Card Influence on Credit

Applying for a store credit card initiates a hard inquiry on your credit report. A hard inquiry can temporarily lower a credit score. Hard inquiries remain on your credit report for up to two years, but their impact usually diminishes after about 12 months. Multiple hard inquiries in a short period can signal higher risk to lenders.

The credit utilization ratio is immediately affected when a store card is opened. Store cards often have low credit limits, so even a small balance can lead to a high utilization percentage. Maintaining a high credit utilization ratio, especially above 30%, can negatively impact your credit score. Conversely, adding a store card can lower your overall utilization if balances are kept low across all accounts.

Opening a new store credit card also affects the length of your credit history by reducing the average age of your credit accounts. This impact is more significant for individuals with a short credit history.

Payment history on a store card holds the same weight as payments on any other credit account. Consistent, on-time payments contribute positively to your credit score. A single payment reported 30 days or more past its due date can severely damage your score.

A store card can contribute to your credit mix, particularly if it is your first revolving credit account or if you have a limited variety of credit types. While credit mix is a smaller factor, managing different kinds of credit can be a positive indicator.

Responsible Store Card Management

Managing store credit cards effectively can lead to positive credit outcomes. Always make payments on time, every time. Payment history is the most influential factor in credit scoring, so consistent, timely payments are paramount for building and maintaining a strong credit score.

Keeping balances low, ideally paying the full statement balance each month, is another important strategy. This ensures a low credit utilization ratio, which is beneficial for your credit score. A credit utilization ratio below 30% is generally recommended, but lower is often better.

Avoid opening too many new store accounts within a short timeframe. Each application can cause a temporary dip in your score, and numerous inquiries can suggest a higher credit risk to lenders. Applying for credit only when truly needed can help preserve your score.

Understand the specific terms and conditions of a store credit card. Store cards often come with higher interest rates compared to general-purpose credit cards, so carrying a balance can become costly. Being aware of these terms can help prevent accumulating expensive debt.

Closing an old, established store credit card account can sometimes have an unintended negative effect on a credit score. This action can reduce your total available credit, potentially increasing your credit utilization ratio, and may also shorten the average age of your credit history. Carefully consider these impacts before closing any long-standing credit account.