Does a store credit card build credit?

Does a Store Credit Card Build Credit?

Store credit cards can be a gateway to building or improving your credit, as well as offering immediate savings on purchases. However, the high interest rates associated with these cards can result in increased spending if the balance is not paid off monthly.

How Store Credit Cards Build Credit

Store credit cards are a type of revolving credit, which means you can borrow money up to a certain limit and pay it back over time. As you make purchases and pay down your balance, your payment history and credit utilization (the amount of credit you use compared to your limit) are reported to the credit bureaus. This information is used to calculate your credit score, which lenders use to assess your creditworthiness.

Making regular on-time payments on your store credit card can help you establish a positive payment history, which is one of the most important factors in calculating your credit score. Additionally, keeping your credit utilization low by paying down your balance each month can also improve your score.

Immediate Savings on Purchases

Store credit cards often offer immediate savings on purchases, such as discounts, cashback rewards, or points that can be redeemed for future purchases. These perks can help you save money on your everyday purchases, especially if you shop at the store regularly.

High Interest Rates

However, store credit cards typically have high interest rates, which can range from 20% to 30%. If you carry a balance on your card, you will accrue interest charges each month. These charges can add up quickly, especially if you only make minimum payments.

Risks of Store Credit Cards

In addition to the high interest rates, store credit cards also have other risks, such as:

• Late payment fees: If you miss a payment, you may be charged a late payment fee, which can range from $25 to $40.
• Over-the-limit fees: If you exceed your credit limit, you may be charged an over-the-limit fee, which can range from $25 to $40.
• Increased spending: The convenience and rewards offered by store credit cards can make it easy to overspend. If you are not careful, you may find yourself carrying a large balance with high interest charges.

Alternatives to Store Credit Cards

If you are concerned about the risks associated with store credit cards, there are other options available for building credit, such as:

• Secured credit cards: Secured credit cards require you to put down a security deposit, which is typically equal to the amount of your credit limit. This reduces the risk to the lender and can make it easier to qualify for a card, even if you have bad credit.
• Credit-builder loans: Credit-builder loans are small personal loans that are designed to help you build credit. You make regular payments on the loan, and the payments are reported to the credit bureaus. Once you have repaid the loan, you will have a positive payment history and a higher credit score.

Conclusion

Store credit cards can be a useful tool for building or improving your credit, as well as offering immediate savings on purchases. However, it is important to be aware of the risks associated with these cards, such as the high interest rates and potential for increased spending. If you are not careful, you may find yourself in debt and with a lower credit score than when you started.