Store card or regular card? Both build your credit
By Erica Sandberg
March 3, 2016
Which is better for my credit score — a credit card from a store like Target or a credit card from my credit union? Should I get both at the same time? I guess I don’t really understand credit scores, and I know I should. Help me, please. I’m worried I’ll do the wrong thing here!! — Hannah
Great question, but fret not! Let’s start with a bit of background on credit scores.
The two most widely used credit scores are the FICO and VantageScore, and neither differentiates between card issuers. It doesn’t matter where you get a credit card — store, bank, credit union or card company — what matters is the way you manage your credit.
Credit scores are derived from the data listed on your three consumer credit reports — from TransUnion Equifax and Experian. The data that is provided to the credit bureaus comes from lenders and card issuers with whom you have accounts.
Credit scores analyze past performance to predict future behavior. Your financial past and present are listed on your credit reports. Credit scores take that information and plug it into a mathematical model to assess your future creditworthiness.
Data from three of the four sections of a credit report is used:
Inquiries: There are two types of inquiries, and the first are just notifications that a creditor has checked your file without a prompt from you. These soft pulls won’t be factored into your scores. What will be are the credit cards, loans and financing arrangements that you do apply for. Keep applications to a minimum. They’re a minor scoring factor, but if you don’t have much else on your reports, these hard pulls will drop your score a few points and, therefore, will carry too much weight.
Trade lines: This section includes your open and closed credit information and activity. How long you’ve had credit cards and loans, your payment pattern, credit limits and current debt load are all listed. Obligations gone bad also wind up here. If you didn’t pay a utility, hospital or any other kind of bill, on time or at all, those can go into collections and the collection agency can report your negligence to the credit reporting agencies. These will negatively affect a credit score. Pay all bills on time and in full, though, and your scores will rise.
Public records: Have you been sued for a debt and owe a judgment because of it? That information will appear here and will be factored into your scores. So will bankruptcies and tax liens. Keep this section empty, because anything in it will hurt your score.
As for that fourth section on a credit report, it’s your identification information. This includes your name, address, Social Security number and so forth. It’s not scored, but make sure this data and all the other information on your credit report is accurate. Pull your credit reports for free once a year from each credit bureau at annualcreditreport.com. Check them, and dispute any mistakes.
Now to your question about which card is better for you.
Here’s what you need to know about the difference between retail and general purpose accounts:
Store cards: A store credit card can be great. Many retailers offer special deals for cardholders, so if you shop that store frequently, you can come out ahead with all the discounts and insider sales. Just make a point of paying the bill to zero, as retail cards tend to have really high interest rates, making financing any balance expensive. Also, you’ll typically only be able to use the store card at that retailer unless the card is co-branded with Visa, MasterCard or American Express.
General purpose cards: You can use a general purpose credit card pretty much anywhere. To get a low interest rate or rewards, you’ll need a higher credit score. If you’re just starting out, go for a secured card. With secured cards, you put cash down as collateral, which acts as your credit line. Secured cards act just like unsecured cards, but qualifying for one of these cards is easy. With secured cards, make sure that your credit activity is being reported to the three credit bureaus.
But just start out with one card for a year. Then, as you master charging and repaying responsibly, and only if you are comfortable with managing more than one card, you can research adding another piece of plastic to your wallet.
See, there was no reason to worry! Credit cards, reporting and scoring all make sense when you break it down into the basics. Get the card that best suits your needs.