Store credit cards helped me build my credit so I could get approved for Chase Sapphire Reserve, but here's why I'd think twice before opening one now
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- I opened around half a dozen store credit cards in my early 20s for the discounts.
- While I saw a brief dip in my credit score, they eventually helped me build and maintain good credit because I always paid off my statement in full and on time.
- Using these cards responsibly improved my credit score enough so that I was able to get approved for rewards credit cards like the Chase Sapphire Reserve and the Gold Delta SkyMiles® Credit Card from American Express.
- That being said, store credit cards come with high interest and bad terms, so I wouldn't recommend opening one in most cases.
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In my early 20s, I was a fiend for department store credit cards that offered steep discounts on my first purchase.
When I found the perfect jeans - and blouse, and jacket, and shoes - at Gap and they offered to give me a steep discount off my entire purchase if I signed up for a credit card, I gave them an enthusiastic "yes." When I had to buy work clothes at Macy's for a new job and hadn't yet received my first paycheck, I was happy to open up a Macy's card to save money on my first day of work outfit. When it was time to furnish my first house out of college, I saved a good amount of money on our living room rug and dining chairs by opening a Home Goods credit card.
This isn't something I'd recommend. As I learned later, store credit cards are usually a terrible deal. They come with sky-high interest rates, and they often have very unfavorable terms.
However, I was lucky enough to be able to pay off each store credit card on-time and not fall into debt. Because of this, they worked to my favor.
How store credit cards helped me build my credit
When I first started opening department store credit cards, I had a pretty thin credit file. However, my dad had helped me open a credit union credit card when I turned 18, so I did have some credit. Otherwise, I don't know if I'd be able to qualify for store credit cards.
Read more: How to build credit
Store credit cards are typically easier to get than regular credit cards. They don't have strict credit requirements because department stores make a lot of money off of their credit cardholders thanks to high interest rates and the fact that customers are often incentivized to shop there more often if they have the credit card. So, while I wasn't in a place to qualify for the best rewards credit cards, I had no trouble getting approved for every store credit card I applied for.
Opening lots of credit cards caused a temporary drop in my credit score, but it helped my credit in the end. These credit cards bulked up my file and increased the average age of my accounts over time. Because I used them and then paid them off on-time each month, they added positive data to my payment history.
Having several store credit cards also increased my credit limit across all accounts. This was particularly helpful when I ended up in card debt in my mid-20s. While it was an expensive mistake, my credit score at least remained stable because my debt-to-credit ratio remained low.
When I took a job that involved heavy travel and started applying for lucrative travel rewards credit cards like the Chase Sapphire Reserve, the Gold Delta SkyMiles Amex, and the Ink Business Preferred Credit Card, I was approved instantly. Many of my friends in their early 20s had trouble getting approved due to thin credit files.
The dangers of store credit cards
Even though store credit cards helped me build my credit, I wouldn't recommend them to most people. These credit cards have some of the highest interest rates on the market, and if you do a little too much impulse shopping and find yourself unable to pay off your statement in full one month, interest fees can quickly snowball. This is how people land themselves in debt they can't manage.
On top of that, some store credit cards still partake in questionable practices that regular credit cards have done away with. For example, many regular credit cards now offer 0% interest introductory periods. If the introductory period is 12 months, you don't have to pay interest on any new purchases for the first 12 months after opening the card. Once the period ends, your interest rate goes up to the ongoing rate, which is usually pretty high. However, you only have to pay that interest rate on any remaining balance you haven't paid off.
Store credit cards sometimes come with "deferred interest" offers, which sound similar but are much riskier. If you don't pay off your entire balance by the end of the introductory period - that is, even if you have a remaining balance of $0.01 -- you're charged the regular interest rate retroactively on the entire purchase, including the portion you already paid off. So you need to be extra vigilant about paying attention to your balances and paying everything off before the introductory period ends with a store credit card.
Don't be like me and open store credit cards on the fly just for the discounts. High interest fees and unfavorable terms will outweigh any money you save. However, if you need to build credit and are sure you can use a credit card responsibly, a store credit card could be a viable option - and if you use it responsibly, it could put you in a better position to get approved for rewards credit cards that earn valuable points or cash back.
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