Do Store Credit Cards Build Credit?

Have you got a store credit card lurking in your wallet and wondered if it can help build credit? Or have you been offered one at the checkout numerous times and wondered what it was or if it could help you build your credit and access better loans or mortgages? 



Well, wonder no more! Today we are here to find out if store credit cards can help you build credit and if they are the right choice for you! Keep reading to find out all you need to know about store credit cards and building your credit!

Yes, you can use store credit cards to build your credit! Most credit scoring companies will factor in-store credit cards and their usage into reports, meaning if you use them correctly and make your payments on time, it can help boost your credit, giving you a higher score. 

You will need to check that the card issuer reports your account activity to credit bureaus (Experian and Equifax, for example).

If they do, your usage and payments will be reported, allowing them to determine your credit score. You can find this out by contacting your card provider or checking any documents you have received from them; it’s usually written there. 

As we mentioned earlier, for a store credit card to boost your credit, you must use it wisely. Paying at least the minimum monthly payment on time every month will show that you are clearing the balance and boost your credit. 

If possible, though, paying more can help boost your credit even further! This is because your credit utilization ratio impacts your credit score.

For example, if your store credit card has a limit of $1,000 and your balance is $500, then your credit utilization ratio is 50%. If you got your balance down to $100, though, the utilization would drop to $10, boosting your credit. 

If your utilization ratio is above 30%, it can negatively impact your score! If possible, keep it below this threshold to help boost your credit and avoid it fluctuating from month to month. 

Remember to avoid spending more than you can afford to pay back in one month, as the high-interest rates on store cards can leave you with mounting debt that can feel difficult to clear.

If you find yourself in this situation, you can look at balance transfers to reduce your interest or speak to a financial advisor. They can offer you tailored advice and usually find ways to reduce your interest and clear some debt!

For those that need it, let’s quickly recap what a store credit card is. A store credit card is similar to a traditional credit card but is from a store instead of a bank or credit card company. 

You are usually offered store cards at your favorite retailers at the checkout when purchasing your items. You can usually get approved for the credit card there and then too! They might offer to buy your items now and pay for them later, with no interest for a few months. 

Sometimes, rewards are attached, such as discounts with the retailer or free shipping that you usually wouldn’t receive if you paid with a different method. There are two types of store credit cards typically:

Closed-loop retail cards that can only be used with the retailer. Sometimes they can be used with other brands and partners of the retailer, and you should find this information in your welcome information. 

Or there is an open-loop retail card co-branded with the retailer and a major network like Visa, Mastercard, or American Express. These cards can then be used anywhere those brands are accepted as payment methods. 

But there is a catch, high-interest rates. Interest on store credit cards tends to be higher than a traditional credit card, and you should be careful when spending on them. If you intend only to make the minimum monthly payments, those high-interest rates are going to sting you and leave you with a mounting balance that might become tricky to clear. 

Now that we have covered a store credit card, let’s see if you can use one to build credit.

While a store card is a fantastic way to build credit, it’s not the only method. Typically, you have a better chance of being accepted for a store credit card, and it’s why many people opt for them. But there are other ways you can build credit too. Let’s take a look at these.

Ask for a limit increase. 

If you already have an existing credit or store card that you manage well, it’s worth increasing the limit. Reach out to the provider and ask for the limit to be increased. This can keep your credit utilization lower, boosting credit in some cases. 

Get a secured credit card. 

A secured credit card works like other credit cards; only the provider asks you to place a deposit down to secure the line of credit. They tend to have lower requirements, meaning more people can access them easily. The deposit offers lenders protection and reassurance that they can recoup their money if needed. 

After six months of using one, you can ask for an increase on your limit or apply for an unsecured credit card. Your credit will have been boosted if you have used the card correctly, and you have a better chance of being accepted for other cards. 

Try a credit builder loan.

You can get these from banks or credit unions, and they are a great way to build credit. The lender puts the loan balance into an account that you make monthly payments towards.

As you pay off the loan, you get back what you paid towards it! Not only does it build credit and show you can make payments on time, but it also allows you to save too!

Providing the information is reported to credit bureaus; it’s an excellent way to build your credit.