Do Store Credit Cards Build Credit?

7 Min Read | Last updated: September 13, 2024

A women smiling and making a payment at a retail counter with her smartphone.

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

Store credit cards have the potential to impact your credit score positively or negatively. As with general-use cards, the effects ultimately depend on your financial habits.

At-A-Glance

Store credit cards work like traditional credit cards but, sometimes, can only be used at the retailers they’re connected to.
Store credit cards tend to offer favorable discounts at their associated retailers, but these cards may carry higher interest rates and offer lower credit limits.
When used responsibly, store credit cards might be able to help individuals establish credit history or improve their credit score.

Have you ever experienced a blast of questions at the checkout counter of some stores? From “Would you like to receive coupons via text message?” to “Would you like to save 20% on your purchase today by opening a store credit card?”, the frequency and barrage of questions can make it easy to tune out and blindly say, “No thanks.”

But what happens when you say “yes” to the store credit card? Let’s explain what that means and what it could mean to your credit score.

What Is a Store Credit Card?

A store credit card, sometimes referred to as a retail credit card or private label credit card, is a credit card issued at a specific retailer. In some cases, these cards will also work with brands or partners associated with the retailer (known as closed loop).¹ Store credit cards are commonly offered by department stores, gas stations, and home improvement stores, to name a few.

For example, you may not be able to use a specific department store credit card at a gas station, unless the two retailers happen to have a partnership that allows you to do so.

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Note that store credit cards are not the same as co-branded cards (open-loop cards). Though co-branded cards may be associated with specific companies — think, hotel and airline rewards cards — these cards can be used anywhere their associated card network is accepted.²

How Store Credit Cards Work

Despite the location-based purchasing limitations, store credit cards work the same as your typical personal credit card. You purchase items with your retail credit card at the specific store, and the card issuer sends you a bill each month. In turn, you send them payments for those purchases.

But there are more nuanced differences to be aware of before applying for a store credit card. For example, compared to general-use credit cards, store credit cards may have:

An easier approval process: In general, it might be easier to get approved for a store card.¹ This could be because they have “built-in” protections like lower credit limits and higher interest rates, both of which may help the card issuer hedge against losses (more on these factors later).
Elevated savings and perks at specific retailers: Store credit cards offer extra savings or other benefits at their associated retailers, and some of them kick in on your very first purchase after applying — and getting approved — at checkout. Depending on the retailer, other benefits may include free shipping, online discounts, rewards points, and deals at various spending levels.¹
Lower credit limits: Compared to typical consumer credit cards, store credit cards often have lower credit limits.¹ This lower limit means less spending power, but it’s also part of the reason why it may be easier to get approved for a store credit card. A card offering less available credit means less risk for the card issuer if the consumer were to max out their card limit and not pay it back.
Higher interest rates: All those discounts, sales, and BOGO deals sound sweet. But if you overspend or just can’t pay off the card’s monthly balance in its entirety, you’ll quickly learn that store credit cards often include a much higher interest rate than a typical credit card. According to the Consumer Financial Protection Bureau (CFPB), the average APR at the end of 2022 for private label cards was 27.7%, compared with 22.7% for general purpose credit cards.³ Again, higher interest rates help card issuers recoup any losses if consumers fail to pay off their balance.
Deferred interest: A 0% promotional APR can be a nice hook to get someone to apply for a retail credit card around the time of purchase. But be sure to check whether it’s a 0% intro APR offer or a deferred interest deal. With a deferred interest deal, you might have six months to pay off that $2,000 piece of furniture at 0% interest. But interest still accrues throughout the entire interest-free period, and all those charges will be applied if you don’t fully pay off the $2,000 balance within six months.⁴ To better understand the difference between deferred interest and 0% intro APR offers, read “What Is Deferred Interest?”

How Store Credit Cards Affect Credit Score

Just as store credit cards work in much the same way as regular credit cards, the same holds true for their impact on your credit score.

If you regularly make late payments or miss payments, your payment history — which makes up 35% of your FICO credit score — will feel the impact.⁵ Run up the bill without paying it off quickly and your credit utilization ratio may take a hit.

In addition, when applying for a store credit card, the issuer may run a hard inquiry on your credit report, which may temporarily drop your score a few points.

Conversely, if you follow good credit habits, like making on-time payments and maintaining a low credit utilization ratio, a store credit card might help you boost your credit score — or even help you establish credit history in the first place.

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Store Credit Cards for 'Bad' Credit

A "bad" credit score is subjective terminology. If you've long held a score in the 800s, you might consider a 700 to be a "bad" credit score, even though a 700 is "good" by FICO standards.⁶ Other individuals might use "bad" to describe a credit score that falls under the "fair" or "very poor" categories used by FICO.

If your credit score is lower than you'd like, a store credit card might be a useful tool. For starters, they're usually easier to get approved for than other general-purpose credit cards. And, like typical credit cards, usage is reported to the three major credit bureaus: Experian, Equifax, and TransUnion. However, if approved, you must follow good financial habits to reap the potential credit benefits of a store card.

Fortunately, lower credit limits may make it harder to overspend and, potentially, easier to pay off balances faster. Combined, these factors may help individuals maintain a low credit utilization ratio while they work on strengthening their payment history.

Is a Store Credit Card Right for Me?

According to the same CFPB report mentioned above, 90 million people in the United States carry both a general purpose credit card and a private label credit card, and 10 million hold only private label cards.³

The decision to open a store credit card may be an impulsive one. It often comes at the point of purchase, perhaps after either the cashier asks if you want to open an account or you happened to see a smartly placed promotional sign at checkout.

A few years ago, for example, I was at a department store buying summer clothes for my children. The bill was around $300. The cashier informed me that if I opened a store credit card, I could save 30% on the bill right then and there. Was a $90 savings worth the time spent applying at the register and then managing another bill? My brain said yes. Why? Because I didn’t shop there often enough to run up a big bill quickly, and the amount was small enough for me to pay off when the bill arrived.

Being a frequent shopper at a particular store brings some benefits to a store card, as well. As a homeowner, I find myself in a home improvement store at least once a month. Sometimes it’s for big-ticket items. Other times, it’s to get repair supplies or paint for a room makeover. Opening a home improvement store card felt practical after becoming a homeowner, as the initial 20% off deal saved me plenty on a lawn mower. And the 5% savings on all subsequent purchases outperforms many of the typical cash-back offerings from traditional credit cards.

The bottom line? Whether it’s the right decision is really up to you. Yes, a store credit card may help you establish or rebuild your credit history and benefit your credit score. Yes, it can save you money at the point of purchase. But thanks to higher interest rates, these cards may also lead to spending more money on purchases if you don’t pay off the balance in full each month. You know your spending and bill-paying habits best.

The Takeaway

Store credit cards essentially work the same as traditional credit cards, but you can use them only at the associated brand or its relevant partners. How you manage spending with a store credit card will help determine whether these cards might help or hurt your credit score.

¹ “Pros and Cons of Store Credit Cards,” Experian

² “What Are the Different Types of Credit Cards?,” Experian

³ “2023 Consumer Credit Card Market Report,” Consumer Financial Protection Bureau

⁴ “I got a credit card promising no interest for a purchase if I pay in full within 12 months. How does this work?,” Consumer Financial Protection Bureau

⁵ “How Payment History Impacts Your Credit Score,” myFICO

⁶ “What is a Credit Score?,” myFICO

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Michael Grace is a personal finance and technology freelance writer based in New York.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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