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. Some store cards will approve applicants with scores as low as 550, which is considered poor. Opening a line of credit at a retail store offers advantages, but opening several retail credit cards can negatively affect your credit score.
TL;DR (Too Long; Didn't Read)
While most stores don't post their minimum credit score requirements for their store card, CreditDonkey reports that Walmart has a 550 minimum for their store card.
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, Capital One issues the Saks Fifth Avenue credit card and Citibank issues the Sears card. 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 580 and 669 are considered fair. For a Walmart credit card, a score of 660 or higher is recommended, but those with scores as low as 550 have reported success when applying for the card. Best Buy credit cards, which are issued by Citibank, require a credit score of at least 660.
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.
Disadvantages Associated With Store Cards
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 standard credit card, you might save money in interest charges. Simply 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 a retail account, your score may drop slightly simply because the account is new.
Advantages Associated With Store Cards
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.
- MyFICO: What’s in my FICO Scores
- Experian: What Is a Good Credit Score?
- Saks Fifth Avenue: SaksFirst Store Card
- Sears: Save More at Sears and KMart
- Credit Karma: Are Retail Cards the Easiest Credit Cards to Get Approved For?
- Bankrate: Are Store Credit Cards a Good Deal?
- Credit Donkey: Walmart Credit Card Review
- Finder: Is the Best Buy Credit Card Worth Applying For?
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.