How can retail credit cards help you build credit?


Contrary to popular belief, using credit cards can be a big benefit for your credit history, helping to build a positive credit history, history of on-time payments, and low levels of credit utilization rate. This applies to all sorts of credit cards, including retail credit cards. These credit cards are specific types of cards that come with specific benefits or discounts at certain stores, like the Target RedCard. These cards can be very helpful to building credit, despite the limited way in which you can use them. Here’s how.

Does the Card Company Report?

In many cases, retail credit cards are counted towards your credit just like any other credit card. This, of course, can be wonderful – or terrible – for your credit score, as it could impact your history of making on-time payments and overall credit utilization rate. However, not all retail credit companies actually report these scores to the credit rating agencies, or may only do so with one or two instead of all three of the important rating agencies. 

If you are looking to use a retail credit card to build your credit history, you need to get a clear answer to this question. As such, reach out to the customer service department of the credit card in question, and get an answer to this question. If the answer is yes, you should use the card. If the answer is no, you may want to reconsider.

The Same Rules Apply

While some retail credit cards do not report their findings to credit agencies, other rules of credit use still apply. You need to make payments on time, and you need to make sure you pay off as much as possible – ideally, the full balance – in order to keep your credit utilization rate low. Late payments or delinquencies will absolutely be reported to credit rating agencies, even if positive payments won’t. Furthermore, not paying your full balance will result in interest being assessed, and these interest rates are often more expensive than the rates on other credit cards. 

As such, don’t assume that a retail credit card operates any differently than any other card. 

Keep Your Use Low

There is, of course, nothing wrong with using your credit card. In fact, you should, if you are going to build a long-term history of on-time payments. Indeed, one of the best things that a retail credit card can do is boost your overall credit limit. These limits are usually lower than regular credit cards, as the odds are good you will never need to approach the full limit the way you would for a regular card.

However, you should still strive to keep your use of one of these cards low. This way, you can use the card to increase your overall credit limit. This has the effect of lowering your credit utilization rate. Making full payments will also help to accomplish this goal. 

Store credit cards also have high-interest rates – often higher than regular cards. Keeping your use low, and making payments on-time, will help you to stave off interest rate payments. 

Great For Bad Credit

Store credit cards can be particularly useful if you have lower credit scores and are looking to rebuild your score. This is for all of the above reasons, but there are some additional considerations. If a card is closed-loop, this means that it can only be used inside of one network of stores. This can help to reduce the temptation to use the card elsewhere, thus helping to teach financial discipline. They can also be used to rebuild bad credit, but without the added fees, interest, or deposit that comes with a secured credit card. If you already have a credit card, you can ask for the card’s limit to be approved, as this is an easy way of increasing your credit utilization rate without having to make a payment. Last, these cards are often easier to be approved for than other, regular credit cards. This, of course, is ideal if you have struggled with credit card use in the past.

The conclusion is this: Store credit cards, like regular credit cards, can be very helpful in building credit. Indeed, in some situations, they can be better than a regular credit card would be. However, the limited nature of these cards does not mean that they should be treated any differently than any other credit card. Use them sparingly, making payments on-time, and you will be well on your way to using these cards to help your credit. 

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