Store Branded Credit Cards Damages Credit Score

With retailers upping their marketing of their own store branded credit cards, consumers need to be aware of what they are taking on should they get tempted and apply for one.

The big draw of store branded credit cards is that retailers offer them along with highly favorable discounts or a limited period of interest free card usage. What consumers do not know is that, in many cases, store branded cards can mean more financial risks for them. Not only can that, but store branded credit cards also cause considerable damage in a consumer’s credit score.

Store branded cards are easy to get. In fact, consumers can get one approved right at the cashier. Retailers only need to make a simple credit score check for an applicant before they approve a store branded card. The ease of application is compensated by the relatively higher interest rates that store branded cards have, a risk which completely cancels out the discounts and other benefits that these cards offer.

The higher interest rate poses a greater risk for card holders should they be unable to keep up with their payments. Making a mistake in paying down debt with store branded cards is ultimately much more costly for card holders than if they had stuck with regular cards. Such a mistake also brings damage to the card holder’s credit score.

In fact, consumers may already be damaging their score simply by opening a new store branded credit card line. As credit scores are calculated, every new account accounts for ten percent of the overall score. The more accounts a consumer opens up, the bigger the impact it will have on their score.

A newly opened store credit card also reduces the average age of the card holder’s cards in his or her credit history. This, in turn will result in a reduction of his or her score. Credit agencies prefer to see older credit histories among consumers. A consumer’s financial history age makes up for fifteen percent of his or her score. A consumer who opens up new cards in a short period of time is considered by agencies to be riskier.

This low credit limit of store branded cards also has a negative effect on the card holder’s score. With a lower limit, whenever a card holder uses his or her card, its credit utilization rate – the ratio between available credit and debt carried by the card – goes up. A higher utilization rate results in a lower score. Thirty percent of scores depend on this credit utilization rate.