How Do Store Credit Cards Affect Your Credit Score?

Have you ever experienced a blast of questions at the checkout counter of some stores? From “Would you like to receive coupons via text message?” to “Would you like to save 20% on your purchase today by opening a store credit card?” the frequency and barrage of questions can make it easy to tune out and blindly say, “No thanks.”

But what happens when you say “yes” to the store credit card? Let’s explain what that means and what it could mean to your credit score.

A store credit card, also referred to as a retail credit card or private label credit card, is a credit card that can be used only at a specific retailer. In some cases, these cards will also work with brands or partners associated with the retailer. Store credit cards are commonly offered by department stores, gas stations, and home improvement stores, to name a few. You probably wouldn’t be able to use a specific department store credit card at a gas station, unless the two retailers happen to have a partnership that allows you to do so.

Note that store credit cards are not the same as co-branded cards. Though co-branded cards are also associated with specific companies – think, hotel and airline rewards cards – these cards can be used anywhere their associated card network is accepted.

Despite the location-based purchasing limitations, store credit cards work the same as your typical personal credit card. You purchase items with your retail credit card at the specific store, and the card issuer sends you a bill each month. In turn, you send them payments for those purchases.

But there are more nuanced differences to be aware of before applying for a store credit card. For example, compared to general-use credit cards, store credit cards may have:

• An easier approval process: In general, it might be easier to get approved for a store card. This could be because they have “built-in” protections like lower credit limits and higher interest rates, both of which can help the card issuer hedge against losses (more on these factors later).
• Elevated savings and perks at specific retailers: Store credit cards tend to offer extra savings or other benefits at their associated retailers, and many of them kick in on your very first purchase after applying – and getting approved – at checkout. Depending on the retailer, other benefits may include free shipping, online discounts, rewards points, and extra-savings deals at various spending levels.
• Lower credit limits: Compared to typical consumer credit cards, store credit cards often have lower credit limits. This lower limit means less spending power, but it’s also part of the reason why it may be easier to get approved for a store credit card. A card offering less available credit means less risk for the card issuer if the consumer were to max out their card limit and not pay it back.
• Higher interest rates: All those discounts, sales, and BOGO deals sound sweet. But if you overspend or just can’t pay off the card’s monthly balance in its entirety, you’ll quickly learn that store credit cards often include a much higher interest rate than a typical credit card. According to a Consumer Financial Protection Bureau (CFPB) report from 2021, the average APR in 2020 for store credit cards was 25.7%, compared with 19.2% for consumer credit cards.¹ Again, higher interest rates help card issuers recoup any losses if consumers fail to pay off their balance.
• Deferred interest: A 0% promotional APR can be a nice hook to get someone to apply for a retail credit card around the time of purchase. But be sure to check whether it’s a 0% intro APR offer or a deferred interest deal. With a deferred interest deal, you might have six months to pay off that $2,000 piece of furniture at 0% interest. But interest still accrues throughout the entire interest-free period, and all those charges will be applied if you don’t fully pay of the $2,000 balance within six months. To better understand the difference between deferred interest and 0% intro APR offers, read “What Is Deferred Interest?”

Just as store credit cards work in much the same way as regular credit cards, the same holds true for their impact on your credit score.

If you regularly make late payments or miss payments, your payment history – which makes up 35% of your FICO credit score – will feel the impact. Run up the bill without paying it off quickly and your credit utilization ratio will take a hit.

In addition, when applying for a store credit card, the issuer may run a hard inquiry on your credit report, which can temporarily drop your score a few points.

Conversely, if you follow good credit habits, like making on-time payments and maintaining a low credit utilization ratio, a store credit card can help you boost your credit score – or even help you establish credit history in the first place.

A "bad" credit score is subjective terminology. If you've long held a score in the 800s, you might consider a 700 to be a "bad" credit score, even though a 700 is "good" by FICO standards. Other individuals might use "bad" to describe a credit score that falls under the "fair" or "very poor" categories used by FICO. If your credit score is lower than you'd like, a store credit card can be a useful tool. For starters, they can be easier to get approved for than other general-purpose credit cards. And, like typical credit cards, usage is reported to the three major credit bureaus, Experian, Equifax, and TransUnion. However, if approved, you must follow good financial habits to reap the potential credit benefits of a store card.

Fortunately, lower credit limits can make it harder to overspend and, potentially, easier to pay off balances faster. Combined, these factors may help individuals maintain a low credit utilization ratio while they work on strengthening their payment history.