Using credit cards to improve credit scores

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Although credit-challenged consumers typically have problems qualifying for a general purpose credit card, using store brand (also called private label) credit cards can help rebuild credit. There are advantages and disadvantages to doing this.

Debt management: Beware of temptation you can’t afford

• Department stores often lure customers into applying for their store credit cards by promising a deep discount for the day’s shopping: “Save 30 percent on everything you buy today!” is a popular approach. Falling for this pitch can be bad news if you don’t have a tight hold on your spending. The credit card company is betting that you’ll charge more than you can pay off in one billing cycle, and will pay interest on your purchases. Finance charges can reduce or negate the benefit of the discount offered for opening the account.
• Opening too many credit accounts can “ding” your credit scores. Going to the mall and opening two or three credit cards in one day can reduce your credit scores, which can ultimately cost more long term than savings gained using the one-day discount shopping spree offered for opening an account.
• Store brand cards are considered a higher risk by credit issuers because in times of trouble, consumers may be less likely to pay their department store card than general purpose cards they use to buy groceries and gas. Store brand cards carry high interest rates that can make paying off balances difficult. Avoid the slippery slope of credit card debt by charging no more than you can pay off within one billing cycle.

Debt consolidation and credit counseling help available

Using credit cards to improve credit may seem unusual if you’re working to improve your credit, but the only way to raise credit scores is by using credit. Before grabbing your plastic and heading for the mall or electronics store, please keep these tips in mind:

• Avoid spending sprees: If you’re a fan of retail therapy, it’s important to avoid going crazy with your credit card in your favorite store. Instead, buy one or two items you can afford to pay off as soon as you receive your statement.
• Make affordable purchases consistently: Establishing a good repayment history over time boosts your credit scores. Instead of binge buying all in one day, plan your purchases. Replenish your favorite cosmetics or buy new tools one at a time over a period of months.
• Monitor your credit scores: Check out your credit scores each month at sites such as CreditKarma.com.

Tracking credit scores can boost your determination to avoid credit card debt and improve your credit scores. Contact a service that offers debt consolidation and credit counseling if you need help with debt management.

Post written by Karen Lawson

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