How Department Stores Give Out Store Credit Cards
We all have heard it when we approach the cashier's counter in the department store. She asks if you would like to save 20 percent on your purchase today by applying for the store's credit card. After all, it only takes 30 seconds to get approved; just hand over your driver's license and a major credit card. Department store cards use different factors to determine who is approved.
Other People Are Reading
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FICO Score
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The cornerstone of credit decisions is the three-digit number called the FICO score. FICO scores range from 350 to 850, with the higher numbers meaning that you are a better credit risk. The FICO score is easy for a department store to check and it provides a standard of comparison for different credit types. Credit scoring is a major indicator of who will be approved for credit in a department store.
Other Scores
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Many department stores and finance companies have their own scoring grids which use information that they obtain from your credit report along with other information you provide on your application. Different industries or types of stores look at criteria differently to determine who is most likely to default. For example, if a finance company issuing a department store card finds that people who only have one other department store card are 50 percent less likely to default, that fact will be used when making their credit decisions.
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Finance Company Experience
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Most department store credit cards are issued by finance companies. When the finance company evaluates you to see if it can approve you for a credit card, it may look at how you have used other cards you hold with it. In addition to payment history, it can also review what types of charges you make on these other cards. This is information that would not be readily available from credit reporting agencies. Some credit card companies believe that certain types of purchases make you a higher risk for default.
Pay For The Privilege?
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Although you may save a percentage of the price of your purchase for that day, you may pay dearly for that savings in the long run. Most department store credit cards charge fairly high interest rates, often in the low to mid 20 percent range. Even if you intend to pay them off each month, missing a payoff by one day could be expensive, especially with late fees. Also, applying for the card results in an inquiry on your credit report. This can cause your credit score to drop by up to 30 points depending on how many other inquiries you have. A lower score means that you pay more for credit from all sources.
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