Instore Credit Cards Used to Be a Great Tool for Building Credit

Also known as merchant credit cards, these accounts can be used only in the stores associated with that merchant.

Sears, J.C. Penney, and other large department store chains have made these cards popular. Used in store or for catalog orders, these credit accounts increase the store chain's sales and offer a good option for those just beginning to build a credit history.

When application is made for an in store credit account, your credit file will be requested from one of the three major credit reporting agencies.

The ease of obtaining in store accounts is due to lower standards set by the merchant. A department store card has limited use and lower credit lines than standard consumer credit accounts.

This reduces the risk for the merchant and provides an easily obtained credit account for consumers. Department store chains manage their credit cards just as large banks do.

They report to the major credit bureaus on a regular basis and thus are useful in helping you build a credit file.

The Downside

There is a downside to department or big box store branded card. The interest rates are almost always higher than rates on standard lender-issued credit accounts. Though they do help your credit they are only a starting point to building a credit history.

The low limits and high interest rates combine to provide some good credit history but not a sufficiently important history to allow you to obtain a mortgage or other large loan.

Bad Rating Usually Means Not Approved

If your credit rating is bad you may not qualify for an in store credit card. This is especially true if the bad items in your file are late payments or other problems associated with credit debt.

Another qualifier used is income. If you have lost your job and have no verifiable regular income you will not qualify for an in store card. Now you realize that the instore credit cards are not actually so easy to obtain.

For large retails such as Home Depot and Lowe's, the interest rate on credit accounts is significant. The standard rate today for such retailers is 21% on all purchases.

This is balance somewhat by special offers mailed to account holders on a regular basis. If you have an in store credit card, you may be the first to know about a huge upcoming sale.

You may also receive special offers entitling you to additional discounts when you use your card during certain times.

Moving into a new home often requires making large purchases. You may need appliances, a lawn mower, fancy grill or patio furniture.

Anticipating these purchases wise consumers often open in store accounts with large retailers and big box hardware chain stores.

Several times a year these retailers send out special promotions to credit account holders offering reduced interest or even "same as cash" offers on large purchases.

It's possible to buy expensive appliances or tools and make payments for up to a year with no interest charged.

If you do this remember to mark the date when the special offer expires. If you do not pay off the item in full during the period when no interest is charged, you will be charge the full interest for the entire year since you purchased the item.

Conclusion

Clearly, the instore credit cards can be useful for those who have large purchases planned or who need to begin to establish some record of credit.

They may also help those with past credit debt problems manage credit (consider even prepaid cards) in a more responsible way simply because they can't be used except in the store that issue them.