Credit Score Articles

How Retail Credit Cards Impact Your Credit Score

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Whether it’s because you always return to the same shops or because you plan to make a major purchase soon, retailers may have enticed you to sign up for their credit card offers. Upon opening the account a new trade line appears on your credit report, which has probably got you thinking – how is my retail card affecting my credit score?

Good question. One key aspect to understand is that although it is a credit card, for many scoring models it does not have as great an impact as traditional cards. That’s the case for many reasons, the main one being that the limitations on retail cards make it less indicative of your overall financial management practices. For instance, your retail card will not come with as high of a spending limit and you can only use it at one store. Whereas a regular credit card could come with a several thousand dollar limit that’s accepted anywhere, as good as cash.

Although both function similarly as revolving credit accounts, retail credit cards won’t have as far reaching effects on your money habits and thusly do not contribute to your credit score as significantly. Consider it something like a 3:1 ratio – for every three ways that a traditional credit card impacts your score, a retail cards makes one impact, depending on the scoring model.

Another reason for retail cards lesser influence over your credit score has to do with their distribution. You have to earn a regular credit card – lenders evaluate your qualifications and their decision is largely based on the state of your credit report. Retail cards on the other hand, can be considered more of a marketing ploy to incentivize shoppers. Retailers may tack on additional savings for cardholders, even during sales.

In all, while retail credit cards absolutely contribute to your credit score, they will not contribute in all the same ways as regular credit cards. Traditional credit cards have a much higher significance in calculating your score comparatively.