“And would you like to open a [insert store] card today to receive an extra 10% off your purchase?”
We’ve all heard this upsell strategy. Store credit cards seem to be available at just about any place you exchange currency for goods – except for maybe Seven-11.
For years I firmly shook my head and said, “thanks, I’m all set for today” without ever considering the possible advantages of opening a store card.
Then Banana Republic got me thinking about using a store card to increase my credit limit thus driving down my utilization to improve my credit score.
Why I got a store credit card: to improve my score
The moderately-expensive store was offering 40% off most of the store which could be coupled with any discount already bestowed upon sales rack items. While trying on clothes, I overheard the dressing room attendant mention if you opened up a Banana Republic credit card, you’d receive 30% off a full-priced item and an additional 10% off everything else.
Like most shoppers, I looked down at the massive stack of clothing I had my eye on I started to do the math. All those discounts could net me over $600 worth of clothing (at it’s original price) for $120. While weeding through the dresses, blouses and pants I started to do another math equation.
If I opened a store card, I would be increasing my overall credit limit. I could use the card for one purchase a month – or none – thus lowering my utilization. A utilization rate below 30% helps prove you aren’t a risky borrower and can increase your credit score. So, if my overall credit limit went from $5,000 to $8,000, and I continued to only spend about $1,200 on my cards each month, I could lower my utilization from about 25% to about 15%. Plus, establishing and using another line of credit responsibly would help improve my overall score.
The opportunity to improve my score, and maybe a little bit of the discount, convinced me to open up a store card — which now sits my hypothetical freezer.
The application process was painless and required I give certain personal information, like my address and social security number, to the cashier. Within a minute I’d been approved. Store cards are ideal for people trying to build their credit from scratch or anyone rebuilding a botched score.
Low scores get approved for store cards
You don’t need to be part of the 700-prime-score-club to get approval for store credit cards. In fact, banks approve much lower scores for store card than they would normally allow if you just walked into a local branch or applied directly for a bank credit card online.
The reason being, banks promise retailers a certain approval rate (perhaps people with a score of 550 or higher), which then requires the banks to approve customers they’d normally consider risky.
Opening a store card is an ideal way for someone with a lower credit score to begin rebuilding his or her credit.
Getting approval for the credit card increases a person’s credit limit thus driving down their utilization ratio as well as diversifying their types of credit. But it only helps if you use the card wisely – perhaps by simply tucking it away. If you do plan on using the card for affordable purchases, it can still be used at any store – not just the one with the logo on the front.
Just beware: when you apply for a store credit card, there will be an inquiry on your credit report. If you want to see where you have a good chance of getting approved for a credit card but do not want to hurt your credit score, consider using a tool from CreditCards.com (you can visit the tool on their website by clicking this link). With this tool, a soft pull that doesn’t hurt your score is pulled and you get to find cards where you have higher approval odds. This might be a good stop before a store card.
Be careful about making purchases on a store card
Just because you have the card doesn’t mean you should be swiping it. Stores (and banks) will entice you to spend on their card by giving all sorts of promotional offers like sales, special discounts or reward points.
Don’t fall for these traps. Seriously. Seeing those promotional offers should set off alarm bells in your head – kind of like when you’re watching a horror movie and want to scream at that stupid character walking into a creepy, dark house.
Store cards have high rates, so if you get caught in a debt cycle it will not only hurt your credit score and history but also attack your wallet. Only use a store card if you’re able to pay a purchase off in full each month.
How you know your credit score is increasing
Not many people send snail mail these days, but banks still love direct mail. Once you start having a mailbox stuffed with credit card offers, you’ve been tapped into the “credit-worthy” group. The first round of mailers might be from sketchy-sounding companies, but it just means you’re on the rise.
Once your score hits a pleasing 680, you’ll be bombarded by offers from well-known credit card companies.
Know yourself and your limitations
Store cards are a simple way to increase a low credit score, but be honest with yourself before signing up. If you tend to easily succumb to sales, discount deals, and promotional offers then perhaps this will end up putting you in debt instead of improving your credit score.
Would you consider opening up a store card to help your credit score?