Are store credit cards good for building credit?

17 AUGUST 2023

If you handle the account well, a store credit card has the potential to help you improve your credit score. There are restrictions that you should be aware of.Woman at cashier making a paymentAre you considering a credit card from your favourite retailer? If you handle the account well, a store credit card has the potential to help you improve your credit score. There are restrictions, though, that you should be aware of before applying.

Similar to a regular credit card, a store credit card enables you to make purchases that you may then pay off later, usually with interest. The approval of store credit cards is typically immediate. When using a store card with the merchant that issued it, you may be eligible for discounts, better card points, free delivery, or other benefits that you wouldn't get if you used another payment method. A store credit card will likely have higher interest rates than a regular credit card.

So how does this work?

Your credit reports contain information on how you have used credit cards, and credit scoring agencies take this information into account when calculating your credit score. If you use store credit cards wisely, paying at least the minimum amount due on time each month and maintaining a low balance, you can use them to help build credit.

Only if your retail credit card activity appears on your credit reports will it count toward your credit score. Making sure the data in your credit reports indicates responsible financial management is essential when developing your credit. The most important component of your credit score is your payment history, and making on-time payments consistently could raise it.

Another important factor in determining credit score is credit use. When compared to your credit limitations, your credit usage ratio shows how much credit you are actually utilising. For instance, if your store credit card has a R3 000 credit limit and you have a R1500 balance, your credit utilisation ratio is 50%. Your utilisation would drop to 10% if you paid off your balance to R300, which would be good for your credit record.

Things to keep in mind

Avoid getting too many cards, as that could be counterproductive to building a healthy credit score. The best approach is to keep the credit at a manageable amount and make payments on time. If a store card is the only form of credit you qualify for, when used correctly, they can help you build a healthy credit profile. Remember that a search is added to your credit report when you apply for a store card.

If you apply for too many of them quickly, your credit score will suffer, making it more difficult for you to obtain credit in the future. Many store cards offer a discount for signing up the first time you spend on it, take advantage of these by waiting until there’s something expensive in the store that you need to buy and maximise on the discount.

So are credit score cards good for building credit?

It depends!

Store credit cards can be good for building credit, but that depends on your financial situation and purchasing habits. Store credit cards typically offer higher interest rates than a conventional credit card but may help you avoid overspending.