All types of credit cards have the ability to impact your credit score. This includes store credit card (or retail cards). Store credit cards are similar to everyday personal credit cards in the sense that how you use them will affect your overall credit score. When you close a store credit card, you are shortening your credit length and decreasing the diversity of your credit mix, both of which are key factors that get calculated into your score.
In this article, let's dive deeper into the following topics:
- What is a store credit card?
- How closing a store card can hurt your credit score
- Soft pulls and department store credit cards
- Considerations when getting a store credit card
- How to improve your credit after closing a store card
What is a store credit card?
A store credit card is a card that you can apply for that you use at a specific store. Sometimes these cards can be used at affiliates within the store's ecosystem—think Gap® and Banana Republic®—and can come with perks like earning rewards and discounts when you pay with the card. Note that these differ from branded cards, such as credit cards associated with hotel companies like Marriott. Unlike store cards, branded cards are backed by credit card companies —including , for example, Visa and MasterCard—and can be used more widely.
When you apply for a store card, it will trigger a hard inquiry or a "hard pull." This is when the issuer (bank or financial institution) is provided with information regarding your credit history to help evaluate your creditworthiness. A hard pull, unlike a soft pull, has the ability to hurt your score by just a few points. It can remain on your credit report for about 2 years.
If you've been approved for a store credit card, you've essentially opened a new line of credit that can only be used at that specific store or within that store's ecosystem. Sometimes called retail cards, this kind of card usually includes an initial promotional offer for a certain percentage off your first purchase made with the card. This type of card can sometimes charge a higher annual percentage rate (APR) than others.
Does closing a store credit card hurt your credit score?
Yes, closing credit cards, including a store credit card, can hurt your credit score. This is due to the fact that your score considers a few key factors, including your credit mix, credit utilization ratio and credit age. See below for the percentage breakdown of your VantageScore3.0®, which you can receive for free upon enrolling in Chase Credit Journey®.
- Payment history (extremely influential)—how consistently you pay your bills on time
- Credit utilization (highly influential)—the proportion of your balances to your credit limits, ideally at or below 30%
- Credit age and mix (highly influential)—how long you've had credit card accounts opened and the diversity of your portfolio, such as credit cards, student loans or mortgages you've made payments towards
- Recent/new credit (less influential)—for example, new credit card accounts, taking out a loan
- Available credit (less influential)—the amount of available credit that you are currently not using
As you can see, credit utilization, credit age and credit mix are weighed heavily in calculating your credit score. If you close your credit card account, you end up decreasing your total available credit, which could increase your credit utilization ratio and hurt your score.
When you close a credit card account, you'll no longer have the track record and history to show your ability to pay towards different kinds of accounts. Your credit score is impacted by the length you've had credit card accounts (the longer the better) and the diversity of your credit portfolio. Having a "thin" credit card profile (one with few accounts opened), could result in a lower score. Unless you have a strong reason to close your store card, it may be in your best interest to keep it open to avoid hurting your credit score.
Soft pulls and department store credit cards
A soft inquiry or "soft pull" is another form of credit check, but it does not provide as much information and won't hurt your score. You might be wondering if it's possible to get a soft pull on your store card rather than a hard pull to avoid hurting your credit score. In short, the answer is: No. While a soft inquiry may be performed during a pre-approval process, a hard inquiry is typically performed when an application is submitted for a new line of credit.
Considerations when getting a store card
If you're thinking about opening up a store credit card, you'll want to take a moment to weigh some of the pros and cons. Let's explore them below.
Pros of opening a store card:
There are several benefits to applying for a store card, including:
- The potential to build positive credit history with on-time payments
- Improving credit utilization ratio
- Diversifying credit mix
- Leveraging rewards or discounts only a store card member can receive
Depending on the store card you choose, you may be able to make purchases at multiple affiliate stores or get exclusive discounts. Typically, you get a promotional discount or reward when you first apply for the credit card that you can put towards your initial purchase.
Cons of opening a store card:
You may want to consider the following prior to opening a store card:
- The ease of using a store card could make it tempting to overspend
- High APRs and late fees
- Limited usability of the card and limited services/perks
Additionally, if you decide to close your store credit card account, you could risk hurting your score by a few points. More on details on how to improve that score are provided below.
Improving your credit after closing a store credit card
If you've decided to close a store credit card, you will likely experience a negative impact to your credit score. Have no fear—this is a temporary dip that may be improved with a few actionable steps. For example, paying off your credit card balances and lowering your credit utilization ratio is an immediate step you can take to help boost your score.
You can also consider monitoring your credit regularly to keep an eye out for any potential errors, fraud or simply to keep track of how your score progresses. You can view and track your credit score on Credit Journey® whenever you'd like with no impact to your score, as well as gain access to resources to help you build better credit history.