Why are Retail Credit Cards Easier to Get Than General Use Ones?

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“John, I want to establish credit and I know one of the ways to do so is to open a new credit card. 

I’ve done some research on the Internet and I’ve seen a bunch of articles about how it’s easier to get a retail card than it is to get an Amex or some other credit cards. 

Can you explain why that’s the case?”

First off, congratulations on taking the big step to get your first credit card.

When used wisely a credit card can be a great way to build a solid credit report and solid credit scores, without taking on any debt.

Just be sure you always pay your balance in full each month and you’ll never have to worry about credit card debt.

Yes, what you’ve been reading is absolutely true.  It is easier to get a retail store credit card than it is to get a general use credit card, like a Visa, MasterCard, American Express or Discover.

Retail store credit cards are structured in such a way that they’re more accessible than their non-retail store cousins.

Higher Interest Rates

The average interest rate on a non-retail credit card is around 15%, depending on whom you believe. Interest rates on retail store cards are almost always well into the 20% range.

The higher interest rate is one way the card issuer subsidizes the risk of doing business with riskier borrowers. That allows them to go deeper into the credit scoring pool with approvals.

Lower Credit Limits

General use credit cards can easily have credit limits in excess of $20,000.

However, you should not expect anything remotely close to that amount with a newly opened retail store card.

In fact, if you are able to get over $1,000 of a credit limit you should consider yourself to be fortunate. This, again, is a way for the card issuer to mitigate their risk.

If you get one of their cards, use it, and go into default a lower credit limit protects the issuer from taking a huge loss.

Annual Fees

Not all retail store credit cards have annual fees, but some do.

Having said that, many general use credit cards also have annual fees as well.

There are certainly enough plastic options that are void of annual fees that you shouldn’t feel like you have to settle on a card that has one.

Limited Usability

If you open a Macy’s card then you can only use it at Macy’s. If you open a Gap card, you can only use it at a Gap store. If you open a Belk card, you can only use it at a Belk store.

That’s another downside to the retail store option. On the other hand, you can use a Visa, MasterCard, Discover or an Amex almost anywhere.

The limited use also acts as an incentive to opening multiple retail cards, which can cause problems with credit scores.

If I were describe a credit card that had a very low credit limit, a very high interest rate, and could only be used at one chain of stores you’d probably think I was describing a sub-prime credit card, which is a card designed with the high risk borrower in mind.  And, you’d be right.

So, if you choose to open a retail store card as your #1 then go for it.

As I mentioned earlier, if you can pay it in full each month you won’t have to worry about debt and you won’t have to worry about the interest rate because you won’t be paying any interest.

However, if you can open a general use card instead that will likely be a better option because of the lower rate, the higher limit and the almost universal usability.

John Ulzheimer is the Credit Expert at CreditSesame.com, and a credit blogger at Mint.com, CreditCardInsider.com and the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO and Equifax, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. You can follow John on Twitter here.






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