Whether you've had store credit cards for years or are applying for your first, they can be perplexing. Store credit cards can be extremely dangerous or extremely helpful, depending on how you use them. This guide will walk you through the basics of using a store credit card, establishing credit, and earning rewards.
What exactly are store credit cards?
Store cards are credit cards that can only be used at specific locations. Customers can get these revolving lines of credit from retailers who work with banks. Store cards encourage customers to buy items on credit today and pay them off later.
Do you have a short credit history or credit that is less than perfect? Store credit cards, you may have heard, are easier to obtain with your credit profile.
How Do Store Credit Cards Function?
Many retailers provide store credit cards, also known as retail cards, in collaboration with banks and, in some cases, credit card networks such as Visa or Mastercard. The cards offer credit to interested customers.
Store credit cards frequently include incentives, such as a first-time discount or ongoing discounts, or rewards for shopping with the brand. As appealing as this may appear, keep in mind that benefits may be limited to spending at the affiliated retailer.
According to Ted Anders, vice president of payments strategy and operations at Affinity Federal Credit Union, store credit cards can be easier to qualify for than traditional credit cards because stores want every applicant to be approved. Each issuer has its own minimum requirements, but consumers with lower-than-average credit scores can usually get store cards.
Is it easier to get approved for retail credit cards as a category?
To a large extent, yes. Store credit cards are typically easier to obtain than many of the unsecured credit cards offered by major credit card companies. "Retail store credit companies are typically more likely to approve people with lower credit scores," says Freddie Huynh, vice president of credit risk at Freedom Financial Network, a San Mateo, California-based debt settlement, mortgage shopping, and personal loan company.
You'll probably shop at their store more frequently, and any fees or interest charged will help the retailer's bottom line.
5 Common Store Credit Card Mistakes and How to Avoid Them
Online store credit guaranteed approval is a great way to build credit and pay for expenses, but if used incorrectly, they can harm your credit score and cost you a lot of money. Here are ten common mistakes you may be making and how you can avoid them.
A store credit card is a valuable asset, but misusing it can cost you a lot of money. Carry a balance and be subjected to exorbitant interest rates. If you miss a payment, you will be charged a late fee. Close a store credit card and your credit score will suffer. The expenses mount quickly.
1. Carrying a month-to-month balance
One of the most common credit score myths is that carrying a credit card balance improves your credit. In fact, 22% of Americans carried a balance in the mistaken belief that it would improve their credit score.
Carrying a balance month after month harms your credit score and costs you money. If you carry a balance, your credit utilization rate will be higher, which is the amount of debt you have compared to your available credit. Experts agree that the lower your utilization rate, the better. According to a FICO study, "high achievers" — consumers with an average FICO score of 800 — use only 7% of their credit limit.
2. Making only the bare minimum payments
While you should always make at least the minimum payments, only paying the minimum due is not recommended. Failure to pay your bill in full can lead to debt and unnecessary interest charges. Furthermore, paying only the minimum can add months — even years — to the time it takes to pay off debt.
Make a payment plan before embarking on larger purchases, and always make consistent, on-time payments toward your balance.
3. Failure to make a payment
If you are more than 30 days past due, late or missed payments can seriously harm your credit score. According to FICO data, a 30-day missed payment will result in a drop of 17 to 83 points and a 90-day missed payment will result in a drop of 27 to 133 points.
However, if your payment is less than 30 days late, your credit score will not suffer because a payment must be a full 30 days past due before it is credit bureaus are notified (Experian, Equifax and TransUnion). However, you may be charged a late fee or penalty interest rate, which raises your APR. Set up automatic payments to ensure that payments are always made on time. Set calendar reminders and email notifications if autopay isn't for you.
Set up automatic payments to ensure that payments are always made on time. Set calendar reminders and email notifications if autopay isn't for you.
4. Failure to review your billing statement
Check that the transactions on your bill are correct so that you can take action against fraudsters or reporting errors as soon as possible. You should, at the very least, check your monthly statement for errors. However, it's a good idea to double-check your transactions a few times per week to ensure everything is in order.
5. Using your store credit card to the limit
It is never a good idea to use the majority, or all, of your available credit. Your utilization rate will be extremely high, potentially lowering your credit score. The amount of credit you use influences your utilization rate, and as previously stated, the lower your utilization rate, the better.
It is essential to utilize your store credit card in a better way because you will be the only one to settle those credits at the end of the day.
Best Practices for Using Catalog Credit Cards
Always handle store credit cards with extreme caution. Unlike debit cards, you're making purchases on credit, which means you're fully responsible for repaying everything charged to your store credit card. You can end up in a lot of debt if you're not careful.
There are four practices to mastering store credit cards. If you only remember one thing from this guide, it should be to always pay your bills on time and in full every month. This strategy alone will significantly improve your personal finances.
Rule #1: Always pay your bills on time (and in full)
The most important rule to remember when using store credit cards is to pay your bill on time and in full. By following this simple rule, you can avoid interest charges, late fees, and poor credit scores. By paying your bill in full, you will avoid interest and improve your credit score.
Rule #2: Maintain a low balance by charging only what you can afford
Aside from making on-time payments, it's critical to keep your balance low in comparison to your available credit limit. Maintaining a small balance has two major advantages:
- Low balances improve your credit score.
- You have a better chance of paying off your balance in full and on time.
Finally, don't think of your store credit card as a budget extension. You should never charge more than what your bank account can currently cover. It's tempting to plan your spending based on what you know you'll get paid, but this is a bad habit. If you lose your job or have an emergency, you will be unable to pay those charges. People do not intend to accumulate credit card debt; it accumulates gradually and becomes a vicious cycle that is difficult to break.
Rule #3: Know how interest is calculated
Interest is not calculated on the remaining balance after making a minimum payment, contrary to popular belief. In reality, issuers calculate interest based on your average daily balance, which is calculated by dividing your card's APR (Annual Percentage Rate) by 365.
Rule #4: Keep an eye on your monthly statement
Monitoring your statement allows you to detect fraud, stay on track with your budget, and keep your balance low. Even if you have an automatic payment set up, you should still log in and check your statement once a month to ensure there are no suspicious transactions.
The Advantages of Using a Secured Store Credit Card for Your Shopping Needs
Store credit cards can provide enticing introductory offers and perks, but they can also have high-interest rates and wreak havoc on your finances if not paid off on time. Store credit cards, when used responsibly, can help you build credit while scoring deals, but use them incorrectly and you may end up paying much more for those shopping splurges.
Consider your spending habits and how much value you can expect from the card before applying for a store credit card. Don't let a store clerk pressure you into signing up without your knowledge.
Here are some of the benefits of using Store Credit Cards:
1. Low Fees
Many store credit cards have no annual fees and beneficial welcome bonuses. As a result, they can be an excellent secondary credit card and wallet addition.
2. Retailer Discounts
Most retailers like to promote their credit cards as a great way to save money, and they usually keep their word. Some may even provide a discount of $25 off your first purchase or something similar. Following that, you may receive discounts or double your reward points when you shop at specific stores. Furthermore, these cards aren't limited to the featured brand, allowing members to earn rewards wherever they shop, albeit at a lower point or cash-back percentage.
While everyone enjoys saving money, avoid overindulging and going on a spending spree, even if it is at your favorite store!
3. Membership Perks
Many store credit cards provide membership benefits in addition to general in-store or online discounts. Cardholders may be able to return items without a receipt or benefit from extended returns, attend members-only events, receive free shipping, or apply for financing and installment plans.
Do Your Research
It pays to shop around regardless of the type of store credit card you want. Rates allow you to compare and search for the best store credit cards all in one place.
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