Store credit cards can help you get started with building credit as long as you use them responsibly and the activity is reported to the major credit bureaus. If you’re not sure if you’re ready for a traditional credit card, you might consider a retail store credit card as an alternative.
Retail credit cards, also known as store credit cards, are credit cards issued by specific retailers. Some store credit cards are good only at the issuing store (or their partners). Others are co-branded by a network like Visa or Mastercard and accepted anywhere those networks are.
What Is a Store Credit Card?
A store credit card is a credit card that is issued by a specific retailer, and usually has perks and benefits associated with that specific store or chain. This category of credit card generally works much like other credit cards, which means they can be useful in building credit as long as they’re used responsibly. However, store credit cards tend to have higher interest rates and easier approval requirements compared to traditional credit cards.
Recommended: How to Avoid Interest On a Credit Card
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Types of Store Credit Cards
Similarly to prepaid credit cards, there are two main types of store credit cards:
• Close-loop store credit cards: The first type of store credit card is a closed-loop store credit card. These can typically only be used at the retailer that issues the card.
• Open-loop store credit cards: Open-loop store credit cards are another type of store credit card. They’re typically co-branded alongside a credit card payment network like Mastercard, American Express, or Visa, and are good anywhere those networks are accepted.
Is Getting a Store Credit Card a Good Idea?
Getting a store credit card can be a good option if you are working on establishing credit. If your store credit card reports usage to the major credit bureaus, then responsibly using a store credit card can be helpful. However, this can work against you, too, if you open a store credit card and don’t follow good credit card habits.
Factors to Consider When Getting a Store Credit Card
The biggest factor you’ll want to consider when getting a store credit card is whether it’s a closed-loop or open-loop card. That will let you know whether you can only use it at the issuing store or whether it’s good at other places.
You’ll also want to understand whether your store card is a charge card or credit card (with a charge card, you won’t have the option to carry a balance). Also find out whether the issuer reports usage to the major credit bureaus, especially if you intend to use the card to build your credit from scratch.
Recommended: What is a Charge Card?
How a Store Credit Card Can Help Build Credit
Store credit cards can help build your credit, as long as the card reports usage information to the major credit bureaus. Responsibly using a store credit card can show a history of on-time payments and add an additional line of credit to your credit mix. Additionally, it has the potential to positively affect your overall credit utilization — the amount of your total available credit limit you’re using — by bolstering your overall credit limit.
Recommended: What is the Average Credit Card Limit?
Can a Store Credit Card Set Back Your Credit Progress?
It’s important to use credit cards wisely, and that includes store credit cards. A store credit card certainly can set back your credit progress if you don’t use it responsibly. If you have late or missed payments or carry a balance that’s near your total credit limit, it may have a negative impact on your credit score.
Recommended: When Are Credit Card Payments Due?
Do Store Credit Cards Applications Require Hard Inquiries?
Yes, in most cases a store credit card application will generate a hard inquiry on your credit report. A hard credit inquiry shows up on your credit report when a potential lender asks for your complete credit report. This inquiry may lower your credit score by a few points for a short period of time, so you’ll want to limit how many credit accounts you apply for.
Benefits of Store Credit Cards
One benefit of a store credit card is that it may be easier to get approved for, especially if it’s a closed-loop store card. Retailers know that cardholders are likely to shop more frequently at their store. As such, they may be more inclined to approve you for a card, even if you don’t have an extensive history of good or excellent credit.
Another potential benefit is the store-specific perks, rewards, or benefits that a store may offer to its cardholders.
Drawbacks of Store Credit Cards
There are downsides to store credit cards to consider as well. For one, they may come with higher interest rates and lower credit limits. It can be easier to drive up your credit utilization ratio, a factor that affects your credit score, with a lower credit limit. Further, if your store credit card is a closed-loop card, you’ll be limited to using it at that specific retailer.
To recap, here are some of the pros and cons of applying for and using a store credit card:
| Pros of Store Credit Cards | Cons of Store Credit Cards |
|---|---|
| Easier to get approved for than a traditional credit card | May come with higher interest rates |
| Can offer solid store-specific perks, benefits, and rewards | May have lower credit limits, which can make it easier to drive up credit utilization |
| Can help you build credit when used responsibly | Closed-loop store cards can only be used at that specific store or chain |
Recommended: Tips for Using a Credit Card Responsibly
Alternative Ways to Build Credit
If applying for and using a store credit card doesn’t fit into your financial plans, here are a few other ways to build credit that you might consider:
• Apply for a traditional credit card, like the SoFi credit card
• Consider getting a secured credit card, which requires a deposit
• Take out and responsibly use a personal loan
• Use an auto loan to purchase your next vehicle
• Get a supplementary credit card, also known as an authorized user credit card
• Regularly review your credit report for any inaccurate information
• Use a credit card cosigner for your application
Recommended: Does Applying For a Credit Card Hurt Your Credit Score?
The Takeaway
A store credit card can help you build credit, as long as it reports usage to the major credit bureaus. In fact, opening a store credit card and using it wisely can be a smart step toward establishing credit since, in many cases, they’re easier to get approved for than a traditional credit card.
Still, there are other options to consider as well if you’re hoping to build your credit. If you feel ready to apply for a traditional credit card, you might look at a cash-back rewards credit card like SoFi’s credit card. If you’re approved for a credit card with SoFi, you can earn unlimited cash-back rewards. You can use those rewards as a statement credit, invest them in fractional shares or put them toward other financial goals you might have, like paying down eligible SoFi debt.
For a limited time, new credit card holders† who also sign up for a SoFi Checking and Savings with direct deposit can start earning 3% cash back rewards on all eligible credit card purchases for 365 days*. Offer ends 12/31/23.
FAQ
Do store credit cards affect your credit?
Yes, store credit cards can affect your credit if they report usage and history to the major credit bureaus. If you regularly pay off your bill each month and keep your statement balance low, it should help build a positive credit history.
Do store credit cards require hard credit checks?
Yes, most store credit cards require a hard credit check when you apply. A hard credit check (or hard pull) happens any time a potential lender asks for your full credit history to help decide whether they will extend you credit. Because each hard pull can temporarily lower your credit score by a few points, you’ll want to limit how many new credit accounts you apply for in a short period of time.
Will closing store credit cards hurt my credit score?
There are some cases where closing a credit card — either a store credit card or a traditional credit card — can hurt your credit score. The main reason why closing a credit card can impact your credit score is by possibly driving up your credit utilization percentage, as your overall credit limit will decrease. Make sure that you understand the possible ramifications before you close a credit card account.
Do retail credit cards build credit?
Retail credit cards can help you build credit as long as they report to the major credit bureaus. Just make sure to use your store or retail credit cards wisely so that it will have a positive impact on your credit score.
Photo credit: iStock/Nastasic
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*You will need to maintain a qualifying Direct Deposit every month with SoFi Checking and Savings in order to continue to receive this promotional cash back rate. Qualifying Direct Deposits are defined as deposits from enrolled member’s employer, payroll, or benefits provider via ACH deposit. Deposits that are not from an employer (such as check deposits; P2P transfers such as from PayPal or Venmo, etc.; merchant transactions such as from PayPal, Stripe, Square, etc.; and bank ACH transfers not from employers) do not qualify for this promotion. A maximum of 36,000 rewards points can be earned from this limited-time offer. After the promotional period ends or once you have earned the maximum points offered by this promotion, your cash back earning rate will revert back to 2%. 36,000 rewards points are worth $360 when redeemed into SoFi Checking and Savings, SoFi Money, SoFi Invest, Crypto, SoFi Personal Loan, SoFi Private Student Loan or Student Loan Refinance and are worth $180 when redeemed as a SoFi Credit Card statement credit.
Promotion Period: The Program will be available from 10/1/22 12:01 AM ET to 12/31/23 11:59PM ET
Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions (“Direct Deposit”) into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.
SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1
Members earn 2 rewards points for every dollar spent on eligible purchases. If you elect to redeem points for cash deposited into your SoFi Checking or Savings account, SoFi Money® account, fractional shares or cryptocurrency in your SoFi Active Invest account, or as a payment to your SoFi Personal, Private Student, or Student Loan Refinance, your points will redeem at a rate of 1 cent per every point. If you elect to redeem points as a statement credit to your SoFi Credit Card account, your points will redeem at a rate of 0.5 cents per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.
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The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
1See Rewards Details at SoFi.com/card/rewards.
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