Do store credit cards hurt your credit?

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Picture this: you’re at your favorite store and you’re about to make a big purchase. The cashier informs you that you could save a lot of money on this transaction (and future ones) by signing up for a store card. Before you sign up, you might wonder whether store credit cards can hurt your credit.

Store credit cards can seem appealing in the moment. But just like with any other credit card, shoppers should know that retail credit cards can affect your credit both negatively and positively. Understanding the benefits and drawbacks can help you decide if store cards are right for you and help ensure you use these cards responsibly.

What is a store credit card?

Store credit cards are offered exclusively by retail stores to finance transactions with that specific retailer. Often, customers are interested in signing up for store credit cards with their favorite retailers because these cards come with extra discounts or points that can be used at the store.

In many ways, a store credit card is like a regular credit card. The card is a type of revolving credit in which a predetermined amount is available to you every month. Your card also comes with an interest rate based on your credit score. If you don’t pay your balance in full at the end of the month, you’ll be charged interest on the outstanding balance.

Unlike a typical credit card, you usually can’t use your store credit card at other places—like to pay for gas or groceries. Credit cards that can be used only with a specific retailer are private label cards. On the other hand, co-branded cards, where the retailer partners with Visa, Mastercard or American Express, can be used in many places.

Plus, you should know that store credit cards often come with lower credit limits and higher interest rates compared to standard credit cards.

How do store credit cards affect your credit?

Like a regular credit card, a store card can affect each of the five main factors making up your credit score. It can impact these factors in both good and bad ways.

Payment history

Even if this store card gets you lots of discounts and can only be used at a single retailer, don’t make the mistake of forgetting it counts as a regular credit card. If you miss or make late payments, the retailer can report this detail to the credit bureaus. Even one of these instances can bring your credit score down by several points. Additionally, missed and late payments can stay on your credit report for up to seven years.

However, the same is true of the opposite. If you make on-time and full payments, this will positively contribute to your payment history and can even increase your credit score.

Credit utilization

As we mentioned, store credit cards typically come with lower credit limits. However, if you have a card at your favorite store, you may be tempted to spend a lot with this card. The combination of a lower limit and higher spending isn’t necessarily great news for your credit utilization.

Credit utilization is the credit you have available to you versus the credit you use. Generally, it’s best to keep your credit utilization ratio below 30 percent to avoid negatively impacting your credit score.

So let’s say you have a credit card with a limit of $5,000. Each month, you use $1,400, so your credit utilization is at 28 percent, which is good. However, you then sign up for a $500 store card with your favorite retailer and spend $450 a month there. Now your total available credit is $5,500 and you’re using $1,850, so your new credit utilization is 34 percent—which is above the recommended amount.

Alternatively, your utilization ratio could actually benefit if you got a store credit card and didn’t use it much, because you’d be increasing the amount of available credit you have without significantly increasing your usage.

Credit age

If you are young or have thin credit, a store credit card might be one of the only cards you can get approved for. Generally speaking, retailer cards have much more lenient qualifications for approval. If you use the card responsibly, this can be a great way to start adding to your credit profile.

Hard inquiries

When you apply for new credit—including a store credit card—the lender will typically make a hard inquiry into your credit. A hard inquiry will initially drop your credit score by a few points. However, this should only last for a few months, and your credit score will recover quickly. There’s not really a way for a hard inquiry to help your credit, but it’s a necessary step when you want to get new credit.

A note of caution: while one hard inquiry doesn’t do too much damage, multiple hard inquiries in a short period can drastically drop your credit score. To avoid this, make sure you don’t apply for any other new credit for a while after getting your store credit card.

Credit mix

A store credit card can add to your credit mix. Having a diverse credit mix—including things like credit cards, car loans and so on—can show you’re a responsible borrower who can manage all types of credit accounts.

Benefits of store cards

Aside from potentially helping your credit, there are other benefits to store credit cards that you should consider:

• Signup discounts: If you were going to make a large purchase at the store anyway, a store credit card could potentially save you a lot of money on this transaction.
• Ongoing discounts and special offers: Most store credit cards come with ongoing discounts and special offers. If this is a store you shop at regularly, these deals can save you a lot of money.
• Better approval odds: Store credit cards have lower eligibility requirements for approval, so your chances of getting approved are high. This is especially great for someone who wants to build up their credit history but can’t get approved for other credit cards.

Drawbacks of store cards

In addition to potentially hurting your credit, there are a few other drawbacks of store cards:

• High interest rates: Store credit cards typically come with higher-than-average fees. According to the Federal Reserve, the average credit card interest rate was 15.95 percent in 2021. In comparison, the average retail credit card interest rate was 24.35 percent. Depending on your credit score, this store credit card rate can go as high as 30 percent. These high interest rates can cost you hundreds or thousands in a given year.
• Expensive fees: Store credit cards are notorious for having extremely high late payment fees. For example, the JCPenney credit card charges $27 if it’s your first late payment in the past six months. If you’ve already been late in the last six months, the fee will be $38. The high interest rates and fees are part of the reason why retailers can offer such fast and lenient approval rates. They offset the risk of lending to individuals with lower credit by increasing fees.
• Limited usability: As we’ve mentioned, many retailer store cards can only be used with that particular retailer. This can make them financial products of little use to you unless you shop at the specific stores quite often.
• Confusing terms: Many people who get a store credit card end up signing up for one right at the cashier. It’s a spur-of-the-moment decision that doesn’t give the borrower the chance to review the card’s terms and conditions. Unfortunately, many store cards come with confusing and poor loan terms. If the borrower had known the terms before signing up, there’s a chance they would’ve said no to the card.

Should you get a store credit card?

Whether you should get a store credit card or not depends on your situation. If you’re looking to start building credit or add to your credit history or mix, it could be an excellent way to go. Plus, the perks can be nice—especially if it’s a store you frequently shop at.

But if you’re worried you won’t be able to stay on top of the payments (or you’ll forget to do so), don’t take the risk. Between potential damage to your wallet and potential damage to your credit score, the consequences can be pretty significant.

If you do choose to get a store credit card, make sure to do your research. You should understand the promotions, keep an eye on how much of your credit you’re using and always make your payments.

And if you don’t want to go that route, there might be other credit options available to you. A regular credit card is probably a better option. If you can’t qualify for your preferred credit card right now, consider working to improve your credit. The credit repair consultants at Lexington Law can help you review your credit, find and initiate disputes for any errors and educate you about maintaining a healthy credit score.

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