A retail credit card from your favorite store is enticing. If you enjoy shopping and the ability to finance your purchases, you might find yourself eager to submit the application. You don't need perfect credit to get approved for a retail credit card, which can make applying even more tempting. Opening a line of credit at a retail store offers advantages, but opening several retail credit cards can affect your credit score.
Typically, retail credit cards have more relaxed qualification requirements. If you are just building your credit, you might choose to start with a retail card. Retail cards with a Visa or MasterCard affiliation are issued by a bank instead of the store's financing department. For example, HSBC issues the Saks Fifth Avenue credit card and Citibank issues the Sears Gold MasterCard. These stores tend to follow the issuing bank's underwriting criteria. Credit card issuers do not specify the average score necessary to obtain a retail credit card. There is no defined range for a fair credit score, but typically a FICO score between 640 and 680 is considered fair. To qualify for a Nordstrom card, for example, you need at least fair credit. It is recommended that your score be at least 684 or higher. For a Walmart credit card, a score of 620 or higher is recommended, but not required.
Factors Affecting Approval
Retail credit card companies consider more than a credit score when reviewing applications. Your employment status, ability to pay, willingness to pay and credit score are all factors used to determine approval. A person with a low credit score because of lack of credit could be more likely to gain approval than an applicant who has a low score because of missed payments or an account in collection. If a store chooses to extend you credit, your credit score and income are generally used to calculate your credit limit. Credit card companies may increase your limit after you display a dependable payment history. The economy also plays a role in your ability to qualify for a retail credit card. Creditors tend to tighten lending standard in a sluggish economy. When the economy is booming, standards are often more relaxed.
A retail credit card has some disadvantages for consumers with established credit. Retail credit cards often carry higher interest rates. If your credit score is high enough to qualify for a stand credit card, you might save money in interest charges. Applying for a retail credit card can hurt your score. Every application you submit appears on your credit report as an inquiry. A single inquiry lowers your score approximately five points. Because retail cards might be easier to get, avoid stacking too many. According to MyFICO, the type of credit you have makes up 10 percent of your score. Ideally, a consumer should have a combination of both revolving and installment accounts. Because retail credit cards tend to have lower limits, even an inexpensive purchase can generate a high credit-utilization ratio. Your utilization ratio is calculated by comparing the balances on your credit cards with the credit limits. New credit cards are also scored lower than older accounts. When you open an retail account, your score may drop slightly simply because the account is new.
Retail credit cards offer rewards and incentives to attract customers. These cards allow you to take advantage of special offers, sales and discounts reserved exclusively for cardholders. Many stores send coupons to cardholders and even offer rebates on store purchases. A retail credit card gives you the opportunity to make small purchases that you can pay off when it's convenient for you. If used properly, you can improve your credit score while saving some cash.
- Smart Money: Department-Store Cards Lower Rates, Boost Rewards
- Forbes: How to Get Approved for a Credit Card
- Business Insider: Three Things Your Credit Card Company Won’t Tell You
- Credit Resource: What Credit Score is Needed for a Nordstrom Card?
- Boston: As Economy Improves, Credit Offers Surge
- USA Today: New Credit Cards Could Hurt Credit Score
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