Do store cards hurt your credit score or help? This concern pops into my head whenever I am at the checkout counter of a department store and the clerk offers a big discount off of my purchase if I agree to open their store card.

The offer is very tempting, and the bigger my purchase, the bigger the temptation. I always decline the offer, pay with a rewards credit card and go on my merry way. The possible direct impact on my credit score is one concern (which most people are probably questioning), but the desire to control spending, and simplify finances is the bigger issue and may impact credit worthiness far more over time.

How Store Cards Affect Credit Scores

For every question about a specific behavior and how it affects a credit score there is the motive of reverse engineering the scoring algorithms to game the system. This section is devoted to parsing out how the scoring systems treat department store and private label store cards. Later on we will explore the far more important element: how store cards impact your own behaviors.

Department store cards can hurt your credit score, but they can also help. It all depends upon the situation, how you utilize the card(s), and manage your debt.

When Store Cards Improve your Credit Score

Department store cards can improve your credit score. Many young adults often find that department store cards are the first form of credit they receive. Lending standards are often more lax, as the stores are motivated to build brand loyalty and get shoppers to return to their outlets.

Store cards can help you build a credit history. Credit scoring algorithms tend to favor profiles with longer histories and more trade lines to evaluate. It’s basic common sense. The more data the algorithm has, the more confidently it can predict risk of default. By opening multiple store cards at an early age you are establishing a track record using multiple credit accounts.

When Store Cards Hurt your Credit Score

Opening too many store cards too quickly can hurt your credit score. Credit seeking activity tends to depress scores. Most algorithms look at both the number of hard inquiries and the number of newly opened accounts, and if there are too many in a short period of time, this will hurt your score.

There is a high correlation between credit seeking activity and future defaults. It is quite common to see a run up of new accounts and account balances just before a default. Opening too many store cards will hurt your credit score because it mimics this pattern of dangerous behaviors.

Closing cards may not hurt your score as much as is suggested elsewhere.

How Store Cards Affect Spending

Now we explore a more subtle but bigger impact for credit scores: how store cards affect spending. Anyone who has accepted the discount enticement to open a store card at the point of purchase quickly finds their mailbox full of coupons and special deals designed to get you back into the store and make another purchase.

Department store cards are the retailers’ primary frequent shopper program. Yes they are offering credit. But the stores themselves are not the lender. Most store cards are issued and managed by third parties: private label lenders who manage the card programs on behalf of the stores. They offer the cards to get you back into the store and spending money at their store.

We all like deals and many will take advantage of the special discounts and ability to buy today and repay tomorrow to rack up some healthy balances.

Store Card Spending Hurts Credit Scores

Excessive store card spending hurts credit scores more than any other factor. It is very common to see profiles of people with twenty different store cards each with a balance. They stop at the store, see a sale or use a coupon to rack up lots of “savings” on items they may not really need or can afford to purchase.

Store cards typically have very small credit limits so it is very easy to drive credit utilization ratios very high. High utilization ratios are highly correlated with default. It shows that either a person can’t control spending, or there has been a disruption in income.

People who spend on the edge sometimes fall over the wrong side of the edge. Spending on store cards can hurt scores when you can’t make payments on time. Any payment that arrives thirty days past the due date will be reported to the credit bureau and remains there for seven years.

Store Card Complexity Hurts Credit Scores

Simplicity is easier to manage than complexity. We lead busy lives. We often take on more than we can handle. The added complexity is my biggest reason why I avoid store cards altogether. In the average month in my family we pay over thirty different bills: credit cards, mortgages, car payments, utilities, cable television, smart phone data plans, car insurance, etc.

This is a lot to manage and sometimes I lose track of what has to be paid and when. I can’t imagine adding to this complexity with ten store card bills to pay every month!

Complexity is the last but biggest reason I feel that store cards hurt credit scores. Managing a budget and controlling spending is enough of a challenge without bills coming from multiple store cards. I much prefer consolidating spending onto one or two rewards credit cards. The entire month worth of spending comes on one or two bills. It’s easy to track where the money goes, and who needs to be paid and when.

How do you handle the complexity?