topic Re: Why Are Store Cards Considered Subprime? in Credit Cards

Why Are Store Cards Considered Subprime?

Anonymous — Sun, 12 Aug 2018 21:01:15 GMT

Someone posted in another thread that store cards are often subprime cards. What makes them subprime, the interest rate? Or is it the lender that issues the card?

Re: Why Are Store Cards Considered Subprime?

Shadowfactor — Sun, 12 Aug 2018 21:49:31 GMT

Normally the underwriting standards for store cards are generally more lax.

Stores want to issue as many cards as possible as it normally equates to more money spent at that store.

The interest rates are quite high normally as well.

Re: Why Are Store Cards Considered Subprime?

Physh1 — Sun, 12 Aug 2018 21:53:11 GMT

They are considered subprime because borrowers with a poor credit history can get them without the strict underwriting 'prime' cards have & the interest rates are usually sky high.

Re: Why Are Store Cards Considered Subprime?

Anonymous — Sun, 12 Aug 2018 22:02:31 GMT

@Physh1 wrote:
They are considered subprime because borrowers with a poor credit history can get them without the strict underwriting 'prime' cards have & the interest rates are usually sky high.

Subprime is used very loosely around here, but the above is really the test. If a card can be obtained by someone with low scores (who could only get a subprime mortgage if at all) then it is subprime. It's really the card rather than the issuer, e.g. Chase Freedom and American Express charge cards can be approved with fairly low scores, whereas other cards in their collections need a much higher score.

That said, IMO store cards are overly hated here. If you don't PIF, then yes, the large APR is bad, but then you should PIF when possible!

If a store card offers a good deal on stuff you actually use, then it might be much more useful to you than a generic bank card.

Re: Why Are Store Cards Considered Subprime?

Shooting-For-800 — Sun, 12 Aug 2018 22:08:58 GMT

I dont think it hurts you if you have major cards also and decent limits on the store cards.

Having 10 store cards with a total of $3,000 CL and $1500 balances is a different story.

Re: Why Are Store Cards Considered Subprime?

sarge12 — Sun, 12 Aug 2018 22:15:36 GMT

@Anonymous wrote:
Someone posted in another thread that store cards are often subprime cards. What makes them subprime, the interest rate? Or is it the lender that issues the card?

The primary motivation for stores issuing cards is to sell you mercandise in their store. They will approve a customer with more questionable credit profiles. A prime credit card relies only on swipe fees and interest to make a profit, so a risky card holder is usually not going to be approved. With the rewards they offer and many of their customers being transactors like myself, a prime card issuer must maintain a low default rate to make a decent profit. Stores can still make a profit even with higher default rates because they are making a profit on the merchandise. Credit card issuers know that store cards have more lax lending standards, so they give less weight to store cards in a customers profile. That is why many here, including myself, shun store cards...I have about 20 credit cards, and none of them are store cards. Citi Costco, and Chase Amazon Prime Visa cards are not store cards. These are co-branded cards backed by banks.

Re: Why Are Store Cards Considered Subprime?

Kforce — Sun, 12 Aug 2018 22:22:32 GMT

@Anonymous
Subprime is used very loosely around here.
+ 1, A lot of what some would call subprime can be excellent cards.

IMO store cards are overly hated here. If you don't PIF, then yes, the large APR is bad, but then you should PIF when possible!
If a store card offers a good deal on stuff you actually use, then it might be much more useful to you than a generic bank card.
+1

On the money again, you should be in "Las Vegas"

Re: Why Are Store Cards Considered Subprime?

Anonymous — Sun, 12 Aug 2018 22:29:56 GMT

@sarge12 wrote:
@Anonymous wrote:
Someone posted in another thread that store cards are often subprime cards. What makes them subprime, the interest rate? Or is it the lender that issues the card?
The primary motivation for stores issuing cards is to sell you mercandise in their store. They will approve a customer with more questionable credit profiles. A prime credit card relies only on swipe fees and interest to make a profit, so a risky card holder is usually not going to be approved. With the rewards they offer and many of their customers being transactors like myself, a prime card issuer must maintain a low default rate to make a decent profit. Stores can still make a profit even with higher default rates because they are making a profit on the merchandise. Credit card issuers know that store cards have more lax lending standards, so they give less weight to store cards in a customers profile. That is why many here, including myself, shun store cards...I have about 20 credit cards, and none of them are store cards. Citi Costco, and Chase Amazon Prime Visa cards are not store cards. These are co-branded cards backed by banks.

But store cards are usually not issued by the store itself, but by a financial institution (e.g. TD Bank for Target, Sync for Amazon etc) so it's not quite so simple as I can make up a bad account by standard profit on merchandise, as the FI takes the hit.

Re: Why Are Store Cards Considered Subprime?

sarge12 — Sun, 12 Aug 2018 22:44:31 GMT

@Kforce wrote:
@Anonymous
Subprime is used very loosely around here.
+ 1, A lot of what some would call subprime can be excellent cards.

IMO store cards are overly hated here. If you don't PIF, then yes, the large APR is bad, but then you should PIF when possible!
If a store card offers a good deal on stuff you actually use, then it might be much more useful to you than a generic bank card.
+1
On the money again, you should be in "Las Vegas"

I will agree that store cards might be more useful than many prime cards are, but that does not negate the fact that they are looked at less favorably by lenders. Having a few store cards in the mix might not harm your credit profile, but having a profile that has many store cards will make obtaining a highly sought after card less likely. I also have heard a lot of bad reports on Synchrony, and Comenity who are the main issuers of these store cards. That being said, if I was a frequent shopper at Lowes, or Home depot, I could see having one of those cards for the discounts they offer, especially if I was building or re-modeling a house. I do believe many here on these forums have way too much exposure to Synchrony and Comenity, and they are known to cancel all cards held by a card holder at once.

Re: Why Are Store Cards Considered Subprime?

Anonymous — Sun, 12 Aug 2018 22:55:01 GMT

@sarge12 wrote:
@Kforce wrote:
@Anonymous
Subprime is used very loosely around here.
+ 1, A lot of what some would call subprime can be excellent cards.

IMO store cards are overly hated here. If you don't PIF, then yes, the large APR is bad, but then you should PIF when possible!
If a store card offers a good deal on stuff you actually use, then it might be much more useful to you than a generic bank card.
+1
On the money again, you should be in "Las Vegas"

I will agree that store cards might be more useful than many prime cards are, but that does not negate the fact that they are looked at less favorably by lenders. Having a few store cards in the mix might not harm your credit profile, but having a profile that has many store cards will make obtaining a highly sought after card less likely. I also have heard a lot of bad reports on Synchrony, and Comenity who are the main issuers of these store cards. That being said, if I was a frequent shopper at Lowes, or Home depot, I could see having one of those cards for the discounts they offer, especially if I was building or re-modeling a house. I do believe many here on these forums have way too much exposure to Synchrony and Comenity, and they are known to cancel all cards held by a card holder at once.

I agree (sort of!). Part of the issue with store cards here is that a lot of rebuilders come here (or similar forums) and learn about the SCT, and get a lot of useless cards with low limits and high APRs (useless because the holder doesn't use that store). So yes, that's a common issue. But if you have a reasonable set of "good" bank cards, I don't think having a few useful (even if fairly low limit) store cards is going to impact you negatively.

Re: Why Are Store Cards Considered Subprime?

sarge12 — Sun, 12 Aug 2018 23:23:56 GMT

@Anonymous wrote:
@sarge12 wrote:
@Kforce wrote:
@Anonymous
Subprime is used very loosely around here.
+ 1, A lot of what some would call subprime can be excellent cards.

IMO store cards are overly hated here. If you don't PIF, then yes, the large APR is bad, but then you should PIF when possible!
If a store card offers a good deal on stuff you actually use, then it might be much more useful to you than a generic bank card.
+1
On the money again, you should be in "Las Vegas"

I will agree that store cards might be more useful than many prime cards are, but that does not negate the fact that they are looked at less favorably by lenders. Having a few store cards in the mix might not harm your credit profile, but having a profile that has many store cards will make obtaining a highly sought after card less likely. I also have heard a lot of bad reports on Synchrony, and Comenity who are the main issuers of these store cards. That being said, if I was a frequent shopper at Lowes, or Home depot, I could see having one of those cards for the discounts they offer, especially if I was building or re-modeling a house. I do believe many here on these forums have way too much exposure to Synchrony and Comenity, and they are known to cancel all cards held by a card holder at once.
I agree (sort of!). Part of the issue with store cards here is that a lot of rebuilders come here (or similar forums) and learn about the SCT, and get a lot of useless cards with low limits and high APRs (useless because the holder doesn't use that store). So yes, that's a common issue. But if you have a reasonable set of "good" bank cards, I don't think having a few useful (even if fairly low limit) store cards is going to impact you negatively.

Completely agree...I have about 20 prime cards...a couple of store cards in the mix would not cause notable damage to my profile. If someones profile consists of 50% store cards however, it might put that CSR card out of reach. There is a reason people with extreme numbers of store cards find it near impossible to get the CSR or Chase Amazon Prime Visa. Loading up with easy to obtain store cards at the beginning of a credit build or re-build is a common mistake. When speaking of store cards...moderation is key!!! Loading up on useless store cards to lower utilization is not a good long term strategy IMO!

Re: Why Are Store Cards Considered Subprime?

Anonymous — Sun, 12 Aug 2018 23:29:48 GMT

@sarge12 wrote:
@Anonymous wrote:
@sarge12 wrote:
@Kforce wrote:
@Anonymous
Subprime is used very loosely around here.
+ 1, A lot of what some would call subprime can be excellent cards.

IMO store cards are overly hated here. If you don't PIF, then yes, the large APR is bad, but then you should PIF when possible!
If a store card offers a good deal on stuff you actually use, then it might be much more useful to you than a generic bank card.
+1
On the money again, you should be in "Las Vegas"

I will agree that store cards might be more useful than many prime cards are, but that does not negate the fact that they are looked at less favorably by lenders. Having a few store cards in the mix might not harm your credit profile, but having a profile that has many store cards will make obtaining a highly sought after card less likely. I also have heard a lot of bad reports on Synchrony, and Comenity who are the main issuers of these store cards. That being said, if I was a frequent shopper at Lowes, or Home depot, I could see having one of those cards for the discounts they offer, especially if I was building or re-modeling a house. I do believe many here on these forums have way too much exposure to Synchrony and Comenity, and they are known to cancel all cards held by a card holder at once.
I agree (sort of!). Part of the issue with store cards here is that a lot of rebuilders come here (or similar forums) and learn about the SCT, and get a lot of useless cards with low limits and high APRs (useless because the holder doesn't use that store). So yes, that's a common issue. But if you have a reasonable set of "good" bank cards, I don't think having a few useful (even if fairly low limit) store cards is going to impact you negatively.
Completely agree...I have about 20 prime cards...a couple of store cards in the mix would not cause notable damage to my profile. If someones profile consists of 50% store cards however, it might put that CSR card out of reach. There is a reason people with extreme numbers of store cards find it near impossible to get the CSR or Chase Amazon Prime Visa. Loading up with easy to obtain store cards at the beginning of a credit build or re-build is a common mistake. When speaking of store cards...moderation is key!!! Loading up on useless store cards to lower utilization is not a good long term strategy IMO!

Are you saying prime card algorithms actually penalize consumers for having store cards in their credit files? Or is it on manual review where this comes into play?

Re: Why Are Store Cards Considered Subprime?

Kforce — Sun, 12 Aug 2018 23:31:11 GMT

@Anonymous
But if you have a reasonable set of "good" bank cards, I don't think having a few useful (even if fairly low limit) store cards is going to impact you negatively.

Find the store card, I mean car

Re: Why Are Store Cards Considered Subprime?

sarge12 — Sun, 12 Aug 2018 23:43:14 GMT

@Anonymous wrote:
@sarge12 wrote:
@Anonymous wrote:
@sarge12 wrote:
@Kforce wrote:
@Anonymous
Subprime is used very loosely around here.
+ 1, A lot of what some would call subprime can be excellent cards.

IMO store cards are overly hated here. If you don't PIF, then yes, the large APR is bad, but then you should PIF when possible!
If a store card offers a good deal on stuff you actually use, then it might be much more useful to you than a generic bank card.
+1
On the money again, you should be in "Las Vegas"

I will agree that store cards might be more useful than many prime cards are, but that does not negate the fact that they are looked at less favorably by lenders. Having a few store cards in the mix might not harm your credit profile, but having a profile that has many store cards will make obtaining a highly sought after card less likely. I also have heard a lot of bad reports on Synchrony, and Comenity who are the main issuers of these store cards. That being said, if I was a frequent shopper at Lowes, or Home depot, I could see having one of those cards for the discounts they offer, especially if I was building or re-modeling a house. I do believe many here on these forums have way too much exposure to Synchrony and Comenity, and they are known to cancel all cards held by a card holder at once.
I agree (sort of!). Part of the issue with store cards here is that a lot of rebuilders come here (or similar forums) and learn about the SCT, and get a lot of useless cards with low limits and high APRs (useless because the holder doesn't use that store). So yes, that's a common issue. But if you have a reasonable set of "good" bank cards, I don't think having a few useful (even if fairly low limit) store cards is going to impact you negatively.
Completely agree...I have about 20 prime cards...a couple of store cards in the mix would not cause notable damage to my profile. If someones profile consists of 50% store cards however, it might put that CSR card out of reach. There is a reason people with extreme numbers of store cards find it near impossible to get the CSR or Chase Amazon Prime Visa. Loading up with easy to obtain store cards at the beginning of a credit build or re-build is a common mistake. When speaking of store cards...moderation is key!!! Loading up on useless store cards to lower utilization is not a good long term strategy IMO!
Are you saying prime card algorithms actually penalize consumers for having store cards in their credit files? Or is it on manual review where this comes into play?

I'm saying that most premium cards do not look at credit scores only, they look at your credit report also. It might not lower your score, but when a lender sees a report loaded with Victorias Secret, Walmart, and other store cards...it matters!!! To put it into perspective, I was recently denied a LOC by Langley FCU with all scores over 800. Reason given...The low credit usage of existing credit with very high credit limits. Yes you read that right...denied because my utilization is so low on all my cards!! Shocked me too!!!

Re: Why Are Store Cards Considered Subprime?

Anonymous — Sun, 12 Aug 2018 23:56:51 GMT

@sarge12 wrote:
I'm saying that most premium cards do not look at credit scores only, they look at your credit report also. It might not lower your score, but when a lender sees a report loaded with Victorias Secret, Walmart, and other store cards...it matters!!! To put it into perspective, I was recently denied a LOC by Langley FCU with all scores over 800. Reason given...The low credit usage of existing credit with very high credit limits. Yes you read that right...denied because my utilization is so low on all my cards!! Shocked me too!!!

But.... the Langley example is nothing to do with your arguement about store cards (if anything, a slight counter example as you don't have any!) So I think we are asking for some evidence that the mere presence of enough store cards will cause CSR/Chase Amazon rejection (because I am unconvinced!)

The LOC denial makes sense in the same way as the Cap One CLDs. Why should I give you a LOC which, based on your low utilization of credit and high available limits, you probably won't use (as the LOC has some cost to me in needed reserves) when I could give it to someone who might use it and make me money.

Re: Why Are Store Cards Considered Subprime?

tcbofade — Mon, 13 Aug 2018 00:33:00 GMT

Back to the OP for a moment, don't worry about whether a store card is prime or subprime. Is it something that you will use and that will benefit you? Then it's a fine card. Is it something you want to pad your utilization? Then it's probably not for you.

DW has several store cards... the only one carrying a balance is a self written card (Nebraska Furniture Mart) that offers awesome zero percent interest deals. (She's had the card for nine years...never paid a penny in interest!)

You don't have to avoid them, but don't want to overload on them either.

Re: Why Are Store Cards Considered Subprime?

SBR249 — Mon, 13 Aug 2018 00:36:01 GMT

wrote:

But store cards are usually not issued by the store itself, but by a financial institution (e.g. TD Bank for Target, Sync for Amazon etc) so it's not quite so simple as I can make up a bad account by standard profit on merchandise, as the FI takes the hit.

While that's true, I think in many cases the store likely has some sort of revenue sharing scheme with the FI (maybe higher swipe fees or guaranteed transaction volume?) that would compensate them for lower UW standards. This probably depends on the specific agreement but otherwise I don't see why banks like Chase would relax their 5/24 rule for the Amazon Prime VS or why Citibank would make the Costco Visa so easy to get.

Re: Why Are Store Cards Considered Subprime?

sarge12 — Mon, 13 Aug 2018 00:38:02 GMT

@Anonymous wrote:
@sarge12 wrote:
I'm saying that most premium cards do not look at credit scores only, they look at your credit report also. It might not lower your score, but when a lender sees a report loaded with Victorias Secret, Walmart, and other store cards...it matters!!! To put it into perspective, I was recently denied a LOC by Langley FCU with all scores over 800. Reason given...The low credit usage of existing credit with very high credit limits. Yes you read that right...denied because my utilization is so low on all my cards!! Shocked me too!!!
But.... the Langley example is nothing to do with your arguement about store cards (if anything, a slight counter example as you don't have any!) So I think we are asking for some evidence that the mere presence of enough store cards will cause CSR/Chase Amazon rejection (because I am unconvinced!)

The LOC denial makes sense in the same way as the Cap One CLDs. Why should I give you a LOC which, based on your low utilization of credit and high available limits, you probably won't use (as the LOC has some cost to me in needed reserves) when I could give it to someone who might use it and make me money.

The Langley example was just to illustrate that scores alone do not guarantee approval. The excessive store cards causing denial is just derived from what websites like Doctor of Credit has previously stated. I also have seen many on these forums saying they were denied, and they showed mostly store cards in their signature. I will admit that I have no proof that this is true, so it is mostly my opinion. It seems many here think that lenders just look at scores to make lending decisions...but they pull a report and score! On another note, I know for certain the mere presence of a consumer finance account will lower your score.

Re: Why Are Store Cards Considered Subprime?

digitek — Mon, 13 Aug 2018 00:51:04 GMT

I think main issue that hasn't been brought up is that you can only use them at the store in question. This makes them not quite as useful, and they will probably change your spending habits to favor that store.

Also, not sure why, and this might be myth, but I have read it multiple times is that when insurers pull your credit report they will actually take stores card into account in a negative way.

And about Langley FCU example I am not sure what your total amount of credit is, but that might be the issue at play here. If your total is high relative to your income and you have low utilization they have to wonder why you'd want the money...

Re: Why Are Store Cards Considered Subprime?

sarge12 — Mon, 13 Aug 2018 01:13:27 GMT

@digitek wrote:
I think main issue that hasn't been brought up is that you can only use them at the store in question. This makes them not quite as useful, and they will probably change your spending habits to favor that store.

Also, not sure why, and this might be myth, but I have read it multiple times is that when insurers pull your credit report they will actually take stores card into account in a negative way.

And about Langley FCU example I am not sure what your total amount of credit is, but that might be the issue at play here. If your total is high relative to your income and you have low utilization they have to wonder why you'd want the money...

Langley CSR actually explained the denial to me. Since I usually PIF all cards before they print a statement, it looks as if I have many credit lines with limits over 10k that shows 0 as the highest statement balance ever. They did not wish to provide me a LOC I had no intention of using. In fact, it would only be used if I somehow made a mistake on my balance...which I never have. Another CU I have an account at recently closed my LOC due to non-use, but re-opened it at my request with a 2500 limit vs the previous 5000. I was just somewhat surprised that the actions taken to keep a very low utilization actually caused a denial when their credit pull for me was 826 fico08 from equifax. I am not upset about the denial and I really did not need the LOC. I am almost always denied a CLI for the same reason...I am only using a tiny fraction of my existing credit limit. So, anyone who thinks 800+ scores are a golden ticket to approvals...it's not!