Build Your Credit

Store credit cards offer a great opportunity for young or inexperienced credit users. These cards generally come with low credit limits and therefore, are more accessible to the masses. When using store credit to build your score, it’s important that you consider the following points.

First of all, even though the “minimum monthly payment” may be as low as $15, you are still responsible for paying the full balance and you will still accrue the high interest (sometimes as high as 28%) if you do not pay every dollar before the due date. In some cases, your interest can get so high; you’ll wind up paying thousands more before you know it! Ideally, you’ll only borrow what you need and you’ll pay the full amount off every time. Each month when you pay on time, your diligence will be positively reported to the three credit bureaus.

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Secondly, be aware that you’ll actually hurt your credit if you spend up to the credit limit. Ideally, you would never spend more than 15-30% of your credit limit. Otherwise, creditors will see you racking up the bills closer and closer to your cut-off: a sign that you may not be managing money efficiently and therefore, are a bigger risk to lenders.

Rebuild Your Credit

You may also use store credit cards to rebuild your credit score after suffering a hit. If your score is in the 600s, you will likely be approved for store credit. To understand how store credit improves your credit score, you must first understand what comprises that three-digit number: 35% is your payment history; 30% is the amounts owed; 15% is the length of credit history; 10% is new credit and 10% is the types of credit used.

To rebuild your credit, always pay your store credit bill in full and on time -- either by mail or in person at the store. That way you will avoid paying any interest charges and you will see positive results on your payment history.

Secondly, avoid the temptation to charge more to earn rewards and always keep your credit balance less than 20% of your limit. For example, if your card’s limit is $300, you shouldn’t spend more than $60 at a time, which will show that you’re effectively managing your money and in no danger of maxing out.

Store credit will also help diversify your credit portfolio, which should be a mix of revolving and installment credit types. Revolving credit involves things like store cards, credit cards and home equity lines. By contrast, installment credit includes things like car loans, mortgages, personal loans and student loans.

Lastly, many people make the mistake of opening an abundance of store credit cards. You should aim to have no more than two department store cards in your wallet because your credit score suffers when you open and close accounts.

Easiest Stores to Get Approved

If you’ve been turned down for credit and you’re worried about having too many dings on your credit report, you may want to consider applying for a secured credit card from Chase, Wells Fargo, US Bank, HSBC or Evans Bank. This card will work like a debit card, where you can only take out what you’ve put in. Unlike a debit card, this positive information will be sent to the credit bureau to help your score. Within six months, you will likely be eligible for a store credit card.

Generally speaking, though, store cards are fairly easy to get. Target and Walmart are often mentioned as good cards for those with little or poor credit history. Sears, Bloomingdales, JC Penney, Borders, Sony, Toys R Us, Starbucks and Home Depot are other contenders to consider. For online shoppers, Chase has paired up with Amazon.com to offer deep discounts and an opportunity to rebuild credit.

It’s a good idea to find a card at a store you frequent most because having too many store cards may hurt your credit if you can’t pay off the balances and have that constant temptation to spend.

Other Ways to Rebuild Credit

Aside from obtaining a store credit card and paying on-time, there are other options if you wish to restore or build up good credit. Secured credit cards are ideal for those who’ve faced bankruptcy or cannot get anything else. Working like a debit card, you can’t borrow more than what you’ve already put in; yet it’s also better than a debit card because the positive information gets reported to the credit bureaus.

Video: Secured Credit Cards & Your Credit Score

Another way to rebuild credit is to get a copy of your credit report and search for errors. You can alert the credit bureaus to errors in your report either online or in writing. If the creditors can’t verify their claims (which, often times, they’re simply too busy to do), then the negative information will instantly come off your credit report, boosting your score by as much as 100 points. If the claims are verified, then you’re no worse off than you were before.

Lastly, simply paying all your bills on-time is the fastest and most efficient way to build up your credit again. These “seemingly arbitrary” due dates should never be taken lightly. If you’re having trouble meeting deadlines, consider consolidating your bills into one manageable monthly payment, requesting a new due date or setting your accounts up for auto-pay through your bank account.

Retail Stores Offering Store Credit:

Target
Walmart
Macy’s
JC Penney
Nordstrom
Sears
Bloomingdale’s
Saks Fifth Avenue
Kohl’s
Best Buy
Home Depot
Costco
Sam’s Club
Amazon Online Store
Dillard’s