USA
USA
USA Canada
Why Credit Cards Can Actually Hurt Your Credit Score
Advertising Disclosure
Credit-Land.com is an independent, advertising-supported web site. Credit-Land.com receives compensation from many credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. Credit-Land.com has not reviewed all available credit card offers in the marketplace.
Credit Card Applications » Research » Guides » Cardholder Benefits » Why Credit Cards Can Actually Hurt Your Credit Score

Why Credit Cards Can Actually Hurt Your Credit Score

By
Add to Favorites:

All year long and especially around the holidays retailers try many different tactics to lure shoppers into spending money. Sales and promotions boasting buy-one-get-one-free or 50% off all previously marked-down merchandise are great ways to save a few bucks, as are free shipping offers, day-long sales events and coupons found online or in your local paper. But what about signing up for a store branded credit card when you check out? Submitting an application on the spot at the register can usually qualify you for a discount of 20% or more off the total amount of your current purchase price which, depending on how much you were already set to spend, can sometimes be a not unsubstantial sum. Can it hurt to take advantage of one of these store credit card offers?

Yes, actually it can hurt – your credit score. Here’s how:

1)    Whenever you apply to open up a new line of credit, the credit card company or retail store pulls your credit report to have a look at your credit history in order to determine whether or not you represent a good credit risk. Too many of these inquiries can have an adverse effect upon your FICO score, causing it to drop anywhere between 15 to 30 points. Opening too many accounts in a short amount of time is regarded by credit scoring bureaus as behavior that is exhibited by riskier borrowers, believing those consumers represent a higher risk for falling behind on paying off their debts. Even if you close the retail store card after shortly after paying off your balance, it won’t undo any of the damage to your score that was inflicted by applying for the card in the first place.

2)    A retail credit card is typically only good for use at the store you got it from, meaning that you will need to have at least one other multi-purpose card that you can use when you want to charge purchases anywhere other than that one particular establishment. Not only does having a lot of balances spread over several different cards increase the possibility for you to slip up and make a payment late, but it can also upset your credit utilization ratio if one of the cards has an especially low spending limit. The vast majority of retail credit cards have notoriously low credit limits, which means that it does not take a very big balance to give you a high credit utilization ratio. That ratio is something credit scoring agencies factor in when determining your credit score and, in that case, lower is better. FICO examines the combined utilization ratio for all credit card account you have, in addition to the ratio on each individual account

As if all that is not reason enough to steer clear of retail store credit cards, the APR on such cards is often much higher than the national average on general purpose cards. The rewards programs affiliated with retail store cards are limited at best – they don’t offer perks such as cash back or airline miles.

Finally, numerous studies have proven that shoppers spend differently when charging purchases to a credit card as opposed to using a debit card where the amount is instantly deducted from their checking account. Quite a bit more, in fact. A study done by Javelin Strategy & Research shows that, on average, consumers spend $58.29 per transaction when using a debit card in contrast to an average purchase amount of $82.10 with a credit card.

It is always wise to think before you spend, but be absolutely certain that you think TWICE before applying for a store credit card.

Add to Favorites:

Related Research:

Discover it® for Students

By Elizabeth Nelson, Posted: August 14, 2014

It is often appears to be hard for students with fair credit history to find an advantageous credit card offer. But things are not that bad since the credit card has come out. The ... Continue reading
Barclay Card Rewards at No Annual Fee

By Elizabeth Nelson, Posted: June 20, 2014

People who reached average credit history are still rarely offered lucrative credit offers. But is a windfall. The card allows you to earn points on all purchases, get access to ... Continue reading
Tronix Country Credit Account: Unsecured Credit Line with 0% Interest Rate

By Elizabeth Nelson, Posted: May 13, 2014

If you do not have credit history and don’t know what credit card to choose to start with, the credit card can become your first card. People with bad credit and with past credit problems can also get approved for ... Continue reading
Get the latest news, articles and expert advice delivered to your inbox. It's FREE.

Other Cardholder Benefits
Research: