Credit healthSherene Costanzocredit score, department store cards, building credit
Too many department store cards can hurt your client's
credit score
The savings and discounts offered by department stores are
everywhere. It seems they offer a discount for applying every time
they ring up a customer. How do you decide where to draw the
line?
Department store cards do not weigh as much toward your credit
score as a bank card such as MasterCard or Visa. It is most definitely better
for your credit score when you hold a MasterCard or Visa with a
major bank.
If you cannot get approved for a major credit card, then try
applying for a department store card. Many times, they are more
likely to approve you for a small credit limit. This allows you to
build some credit history. Be sure to make your payments on time.
Within a few months, you should be able to get approved for a major
bank Visa or MasterCard. If you will no longer use the department
store card, go ahead and close the account. If you are not approved
for a department store card, you can try to build credit with a
secured credit card from a bank. The bank will usually offer you a
small credit limit of $200, but you will have to give them $200 for
security.
So how should you handle those offers for discounts and
promotions at department and specialty stores? You should only take
advantage of special offers if you are good at managing your credit
card bills. Don't fall for every offer. Pick and choose which ones
will benefit you the most.
For example, if you are doing a major remodeling or refurnishing
in your home, you may consider an offer for no interest or payments
for one year. However, with offers like these, you must always read
the fine print. Most of these types of offers require you to pay
off the balance in full before the expiration date or they will
back-charge you interest for the entire year. They will also cancel
the special offer if minimum monthly payments are not paid on time
and will raise your zero percent annual percentage rate to some
ridiculous rate like 29.5 percent.
When a store offers you a 10 percent discount for opening a card
with them, only consider opening a card if you are making a large
purchase - usually $1,000 or more. Take advantage of these offers
only when buying furniture, appliances, electronics or what are
considered large ticket items.
Remember that having too many store credit cards open can
actually hurt your credit score, so choose wisely. If you aren't
currently using them, close them out. Good histories on store
credit cards don't help your score as much as using a major bank
credit card. As a rule of thumb, it is best to keep one or two
major bank cards open for use. Anything else just creates more
bills to pay on time and keep in order. This causes more risk for
extra fees and interest too.
If you shop in one store frequently, then it may benefit you to
hold their credit card and take advantage of discounts on
merchandise for using that store's credit card. Some stores even
offer points or rewards for frequent users. These can really add up
for frequent shoppers.
Store cards tend to charge higher interest when compared with
bank cards. Many times the store cards will work with their
customers when it comes to being late. These stores generally offer
lower credit limits than bank cards, so consumers usually carry
smaller balances and therefore have smaller minimum payments than
on their major credit cards.
As with all credit cards, you must pay on time and keep balances
below 40 percent of the credit limit. If you have a history of
making late payments or not keeping your bills organized, then you
are probably better off avoiding store cards altogether. Even
though it may save you now, it could cost you more money in the
future, especially if it ends up damaging your credit score.
Tips to help keep healthy credit include:
-Understand your credit score;
-Keep a balanced mix of revolving credit cards and installment
loans;
-Always pay bills on time; and
-Keep your credit balances low.
Also, pull your credit at least once or twice a year with all
three credit bureaus to check for fraud or errors, and dispute any
old or negative information. Accidents and hardships happen. Call
your creditors to ask for courtesy removals; if you have a decent
credit history, they may remove late pays from your credit reports.
Many credit restoration companies assist consumers with these types
of services for a fee. If you don't have time to do it yourself,
contact a reputable credit restoration company to assist you.
Sherene Costanzo is vice president of Credit Consultants
Inc. She may be reached at (888) 522-7007 or e-mail
[email protected].
