There are plenty of things that can tank your credit score. Making late payments, losing a home to foreclosure or having to file bankruptcy can all cause serious damage to your credit that can take years to recover from.
One way to get your credit score back on track fairly quickly is to open a credit card account. If you’re keeping the balance on the card low and making your payments faithfully on time each month, that could help your score to start moving in the right direction.
The trouble is, when you have bad credit because of a major delinquency or bankruptcy, getting a credit card may be easier said than done. Getting a secured credit card is one option but there’s a catch. Secured cards require you to pony up some cash for a deposit, which doubles as your credit limit.
If you don’t have any extra money to spare for a secured card, a retail store credit card is an alternative to consider. Retail store cards can give you an opportunity to build a positive payment history but there are some potential downsides to keep in mind.
How a retail store card can help rebuild credit
Generally, retail store credit cards work the same as any other credit card with one key difference: you can only use them to make purchases at the store they’re affiliated with. There’s an exception of course, if the card has a Visa or MasterCard logo. In that scenario, you could use your card at any merchant in the Visa or MasterCard network.
For example, Amazon offers the Amazon Store Card, which can be used for purchases at Amazon.com, as well as the Amazon Rewards Visa Signature Card, which is issued by Chase. Both cards let you earn rewards when you shop Amazon but the Visa Signature Card expands your purchasing power so you can use it anywhere Visa is accepted.
As far as how you can use a retail store card to rebuild credit, it’s really fairly simple. The most important things to remember are to maintain a low balance and pay on time. Those two factors have the most influence when it comes to how your credit score is calculated. Retail store cards are reported on your credit history just like a traditional credit card would be so as long as you’re using it responsibly, it could be a useful way to raise your credit score.
What are the benefits of using a retail store credit card?
Retail store cards aren’t all alike and some offer more advantages than others. Instead of offering an introductory points or cash back bonus like a regular credit card, you may get a discount of 10% to 15% off your first purchase just for signing up. Many retail cards also come with a built-in rewards program. For example, the Best Buy Credit Card offers 5% back in rewards on Best Buy purchases, in-store and online. Alternately, the card gives you the option of taking advantage of special promotional financing terms in lieu of the rewards.