How the practice of using store cards could possibly affect your credit score

by DrPrem Jagyasi

Saving money is a priority for many of us, so we do naturally get interested when a department store offers us an opportunity to save money. The offer tends to ensure substantial savings on the current purchase and all the future purchases if you agree to have their store card. The offer being so tempting, many take the offer while others decline it, as they fear the impending low credit score that could possibly come with the store card.

We recommend reading information from credit score experts ClearScore to understand what a credit score is and why it matters. Read below to find out the direct impact that store cards have on your credit score.

Ways that store cards affect credit scores

If you’re confused as to whether store cards are good or bad for your credit score, here is an answer for you. Store cards do hurt credit score but they can help improve it as well. The thing that matters is your knowledge and awareness. You should know when a store card can be beneficial for you and when not.

When store cards improve credit score

Store cards improve credit score for many people, especially those in their late teens and early 20’s as a store card will be their first form of loan. Basically, they are the ways stores use to transform their one-time buyers into lifetime customers. Therefore, lending standards of this loan are loose, which make customers return to a particular store time and again. As store cards help the stores build brand loyalty, they also help the store cardholder build a positive payment history as well.

Store cardholders with longer histories and more trade lines earn favor of the credit scoring algorithms. The more data the algorithm has, the better it predicts the risk of default. So if you open multiple store cards at an early age, you tend to establish a long usage and payment history that can improve your credit score.

How store cards hurt your credit score

Having multiple store cards is beneficial but opening too many cards quickly can hurt your credit score. Applying for many store cards simultaneously is a loan seeking activity that tends to depress scores. The algorithms take into account the hard inquiries and the number of recently opened accounts as well. So if it shows too many recently opened accounts, it would certainly hurt your credit score.

How store cards affect spending

discounts and hot deals,

The store cards you own and your spending is correlated. You will notice your mailbox gets inundated with discount coupons, codes and special deals as soon as you accept to open a store card.

As we all like discounts and hot deals, we tend to purchase things that we don’t really need, just because it was such a tempting discount. This way, stores manage to make profit and we end up spending. Additionally, some store cards allow their users to purchase today and pay tomorrow which is all well and good but if you don’t look after your repayments on your shoe purchases etc, you can see your credit score suffer.

In a nutshell, store cards with their typically high interest rates and low credit lines often get a bad publicity but they aren’t all bad – especially if you know how to use them wisely. Store cards are great credit tool for making small purchases which you can pay in full each month and establish a good payment history. Store cards are also often easier to qualify for than a traditional unsecured credit card, making them attractive to consumers to looking to build and improve their credit.

If you have a number of store cards with balances, a great way to help your credit score is to pay them off.

Article Submitted By Community Writer

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