If you love to shop, it’s possible to use your fashion sense to help improve your financial sense by building, or even rebuilding, your credit. Here’s how.
Store-branded credit cards are some of the easiest cards to qualify for and are often extended to those who even have bad credit because they have lower criteria than traditional credit cards. Using them, especially if you’re loyal to a particular store and shop there all the time, can bring card rewards, discounts and, if you pay your card off every month, better credit.
In most cases, when you apply for a card, the retailer will offer you a discount on that day’s purchases. Sometimes the new account discount will be extended for purchases made within a short time period (24 hours, for example), as an incentive to get you to spend more. The risk here is that instead of saving money, you end up spending more than you had planned, so it’s good to be wary.
Watch Your Credit Scores
When you open your new credit card, you may see a dip in your credit scores for two reasons: One is the inquiry that is created when the issuer checks your credit score. This inquiry may cause your scores to drop, though usually not more than a few points. In addition, a new account with a balance is often seen as a risk factor. But as long as you pay on time and keep your balances below 30% of your credit line, ideally 10%, you could eventually see a slight rise because you’ll have a positive new credit reference which can prove beneficial if you are trying to build or rebuild credit.
As you use your new card, you can track how your usage and payments are affecting your credit by signing up for Credit.com’s free credit report summary. In addition to getting two free credit scores, you’ll get your very own credit report card that tells you how you’re doing in the five key areas that are included on your credit report and determine your credit score – payment history, debt usage, credit age, account mix and inquiries.
Be Aware of the APR
Interest rates for department store credit cards are almost always on the high side, often 19% – 22% or more. If you carry a balance, the interest you pay will likely exceed the amount you saved with the discount. This means carrying a balance could hamper your goals, especially if you fail to make on-time payments.
Given store credit cards’ high APRs, you won’t want to go on a shopping spree with them, nor will you want to put more purchases on the card than your budget can handle. (For tips on cutting back without feeling deprived, you can go here.)
That said, making a couple of small purchases a month, say, on home essentials or groceries, and paying them off quickly (and on time) will likely beef up your credit.
Before You Apply
Before you fill out an application, you’ll want to know where your credit stands so you have a good sense of what APR you might qualify for. Knowing your score will also inform your decision to apply for a card in general, as inquiries on your credit report can cause your score to take an unnecessary hit.
More on Credit Reports & Credit Scores:
- The Credit.com Credit Reports Learning Center
- What’s a Good Credit Score?
- How to Get Your Free Annual Credit Report
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