Deal or no Deal

Frequently, retailers offer you a chance to save 10% when making a purchase. All you have to do is apply for and get a store credit card. Since you shop there frequently and enjoy the store’s everyday savings, you may think there is nothing to lose by applying for the card. Think again. What you may lose is a few crucial points in your FICO score. Even if you have a pretty good score, the points you lose may be enough to increase your interest rate when you apply for a mortgage or car loan.

On the other hand, if your credit score is already as low as it can get, and the only credit card you can qualify for is a store-sponsored one, it card may help you eventually climb your way back up to a good credit score.

Application for a store-sponsored credit card negatively impacts your credit score.

  • Every application for a credit card of any kind triggers an inquiry with the three major credit reporting companies. Each inquiry reduces your credit score by 10 to 30 points and stays on your record for 12 months.
  • The credit limits are usually low. This makes it very easy for you to max out the card, which lowers your credit score. The good news is that when you pay it off, your score will rebound.
  • Fifteen percent of your credit score is based on the average age of all of your credit cards. Every time you open a new one, the average age is reduced and so is your credit score.
      • Example
        • Card 1 5 years old
        • Card 2 8 years old
        • Card 3 10 years old
        • Average age 7.66 years
        • Add one card and the average age drops to 5.75 years

When a store sponsored credit card may be beneficial.

If you have no credit at all, or have bad credit to a degree that you cannot qualify for a Visa or MasterCard, applying for a store credit card may help you rebuild credit. The income requirements are not as strict and cards are approved for people with low credit scores. If you get such a card, scrupulously follow these rules.

  • Do not max out the card.
  • If you max out the card, pay it off immediately.
  • Make all payments on time. Never, ever make a payment late.
  • Make a small purchase every month and pay it off immediately.

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