Improving your credit can be extremely difficult, but the principle behind doing so is actually fairly simple. You must mitigate past negative information in your credit history by providing a consistent stream of positive information to the major credit reporting agencies each month. Perhaps surprisingly, store-affiliated credit cards—like the Macy’s Store Card—could serve this purpose extremely well.
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In general, the easiest way in which to improve your credit is opening a credit card account and using it responsibly. While many people seeking to build or rebuild their credit are aware of bad credit credit cards and know that secured credit cards and general purpose unsecured credit cards (Visa/MasterCard) are the primary options available to them, they are unaware of the role that store credit cards can serve in accomplishing the very same purpose.
First, you must acknowledge that a secured credit card is and will always be your best bet to improve credit. Secured cards are relatively cheap because the security deposit that you place in activating one protects the credit card company from default and eliminates expensive fee structures that have the potential to wreak havoc on you. This security deposit can also be increased over time, thereby expanding your credit limit. Having more unused credit available is viewed positively by creditors.
What happens though if you do not currently have the requisite $200 to place a security deposit and open a secured credit card, but you want to begin building your credit immediately?
In this case, depending on how bad your credit actually is, you should apply for a store-affiliated unsecured credit card. Such cards differ from general unsecured credit cards because their fee structure and APR tend to be lower.
Stores can afford to offer cheaper credit cards to people building or rebuilding their credit than can traditional credit card companies because store credit cards can only be used to make purchases at the store that issues them. Thus, stores provide lower rates because the card you get will presumably be used to purchase goods that they buy wholesale and sell to you at inflated prices. Therefore, the stores are protected from customer default by their own prices and the fact that their credit card cannot be used anywhere else.
The primary loophole benefit of store cards lies in the fact that, like with any type of credit card, actual use is not required for credit improvement. Just opening the card and maintaining it in good standing and at zero balance contributes positive information to your three major credit reports on a monthly basis. Because of this, with a store card you benefit from the lesser fees while the particular store you get it from is immaterial.
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While many stores do cater their credit cards to people with damaged or no credit, it is by no means guaranteed that you will be approved for one. If you do not get approved after applying for three major-store credit cards, wait until you have the money necessary for a secured credit card’s security deposit.
Numerous credit card applications are viewed negatively by creditors, so applying continuously will only serve to worsen your already damaged or limited credit. Anyway, using a secured credit card—like the Orchard Bank Secured Credit Card, which has a 7.9 percent APR—is the cheapest way to rebuild credit, so waiting might actually work out for the better.
Overall, if you do not have the cash available to open a secured credit card, store credit cards provide a cheaper, undervalued way to improve your credit relative to unsecured credit cards and are underused for this purpose.
This guest post comes from Odysseas Papadimitriou, CEO and Founder of CardHub.com, an online marketplace for credit card applications.