Did You Know: Opening new retail store credit cards can lower your score.

November 29, 2017

As Black Friday, Cyber Monday, and the rest of the holiday shopping season quickly approaching, many of us will be making a trip (or eight) to the local shopping malls. And while we are shopping, we will be tempted with discounts, some as high as 20%, of our purchases if we are willing to apply for and open a new retail store credit card. And while saving money is always nice, it’s important to understand the impact of applying for one or more retail store credit cards in a short period of time.

In fact, everything you’re about to read applies equally to the other 48 weeks of the year that don’t normally coincide with the busiest shopping season. We just seem to lose some of our budgetary controls, which is why saving some amount off your holiday shopping can be so appealing. It all starts with applying for a new retail store credit card.

When you apply for credit, the card issuer will likely pull at least one of your credit reports and credit scores. They will use this information to determine if you meet their eligibility requirements. When they pull your report, a retail store credit inquiry will be placed on your credit report.

If your credit card account is approved, then within a few weeks the account will be reported to one, two or, most likely, all three of the credit reporting companies. When the newly opened card is added to your credit report, it will lower the average age of your accounts because it’s fresh activity.

It’s important to keep in mind that new inquiries and a lower average age of accounts can lower your credit scores. This certainly doesn’t mean you should avoid applying for new accounts over the holiday season, especially if it’s going to save you a bundle of cash. But you should be aware that it has the potential to lower your credit scores.

Of course, for consumers who have extremely strong scores in the mid-700s and above, opening a few new accounts will be much less problematic. For example, if opening a new retail store account lowers your score from 780 to 770, that 10-point decline is basically meaningless because your score remains excellent.

The real issue arises for consumers who already have marginal credit scores. Lenders are less likely to offer the best deals to consumers with scores below 700. A 10-point decline may put a consumer into that category, with substantial and undesirable consequences.

Another consideration is that these retail cards typically offer lower initial credit limits than do bank or credit union-issued credit cards. That means when you charge merchandise to that particular card, the utilization rate (i.e., the balance amount as compared to the credit limit), may be much higher than a bank or credit union credit card. A higher utilization rate could also cause a decline in your credit score.

These issues hold true whether you open new retail credit cards on Black Friday, in May, or at any other time of the year. The prudent thing to do is to pay attention to these issues, especially if you are planning to apply for a new loan in the near future.

Rather than guessing about the possible impact of newly opened accounts, you can find out for certain what your credits scores are now, and what they would be after you opened such retail accounts. There are a variety of websites that will allow you free access to your VantageScore credit scores. You can find a comprehensive list of them here.

Disclaimer: The views and opinions expressed in this article are those of the author John Ulzheimer and do not necessarily reflect the official policy or position of VantageScore Solutions, LLC.

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