What should you know about opening a store credit card?

If you’re learning about credit or are rebuilding your credit score after bankruptcy, you might be looking into options like store credit cards. These credit cards might seem like a good option for teens and young adults or those who want to try rebuilding their credit because of a few factors. The limits are low, and there’s little chance of spending so much that the card can’t be paid off quickly. Almost every time you shop, you’re asked if you want to open a store card; should you? Here are a few things to consider.

It’s easy to make the mistake of opening a store credit card and then filling the card up to its limit. Since the limits are low, you might think it’s a good idea to do that and then pay off the card, but there’s an issue with that process.

When you’ve reached your limit, it makes it look like you max out your credit cards, and that’s not something lenders want to see. Instead, spending just a little with the card looks better and helps your credit. If you max out the card, your credit score will actually suffer and is likely to fall. If you have a store card with a much higher limit, like $1,000, and you only have $100 or $200 used, that looks good because you have extra that you haven’t borrowed against.

Of course, a small card can be good for building credit as long as you pay on time. They tend to be easier to open and don’t require a perfect credit score. Remember that despite the small amounts lent to you, if you open multiple cards, you could still find yourself in financial trouble.

Source: U.S. News & World Report, “5 Things You Need to Know About Store Credit Cards,” Geoff Williams, Sep. 20, 2016