Each Store Card Deletes 20 FICO Points?

[pdxuser]

The following quotes are from stories I found searching for the terms "store credit cards" and "store cards" on Google:

moneycentral.com:

---

Steve Rhode, president of Myvesta, a nonprofit consumer-education organization, agrees, saying that each time you open a store credit card, 20 points are taken off of your credit score because, he says, "Historically, store credit cards are issued to anyone with a pulse. They issue credit cards to people who otherwise can't get credit."

---

Combine that with:

usatoday.com:

---

Linda Sherry, director of national priorities for the non-profit group Consumer Action, recommends that customers steer toward bank cards or co-branded retail cards that are issued with Visa or MasterCard because they are rated higher in credit scores.

---

And I'm led to wonder if opening a store card really does help one's FICO score in terms of "credit mix." Hasn't it been said elsewhere in this forum that getting a new installment tradeline on a CBR doesn't seem to move the score, despite being told that it will improve the "credit mix?"

Update: Here's a quote, from FICO itself: "Only 12% of FICO High Achievers have a consumer finance account."

An unrelated quote from the same search:

bankrate.com:

---

To ensure that your credit report doesn't make lenders nervous, experts say you should carry no more than two credit cards. They suggest holding cards such as Visa and MasterCard, which offer lower interest rates, wide acceptance and no annual fees.

---

The whole goal of my getting credit is to get a mortgage. I don't want a lender thinking I will get a mortgage, then use multiple cards to charge up a bunch of furniture and be hard-pressed to make payments on time. Speaking of which, another Bankrate.com article:

bankrate.com:

---

Aside from the debt you can accumulate, access to large amounts of credit can hurt your chances of getting a mortgage or some other necessary financing. A loan officer may think that after you buy the house you will be tempted to use all that credit to furnish it, and default on your home loan.

---

If I can keep my utilization very low on one or two cards with low CLs, would that be preferable to the same very low utilization on a couple more cards with higher CLs? Or would just one or two low-limit tradelines make lenders think I've never been trusted with much risk, and have therefore never proven my ability to handle large risk?

Another downside to store cards:

yahoo.com:

---

Consumers who sign up for store credit cards may also end up on marketing mailing lists or find that their personal information compromised. Large chains such as Wal-Mart routinely sell data to third parties, which in turn try to offer you special promotions or services. Unsolicited offers like these may be an annoyance, especially if you're already flooded with offers you don't want.

---

And "information sharing" can apparently be worse than that:

consumerist.com:

---

Recently, a Consumerist tipster sent in an internal memo from Macy's explaining that the store was "flipping" 3.5 million inactive store accounts into Citibank Mastercards. The memo reads:

"Approximately 3.5 million inactive (24-48 months) Macy's accounts have been selected to "flip" to the Citibank Mastercard. That means the customer will be sent a Citibank Mastercard to replace their inactive Macy's card. "

The "flip," as they call it, was "opt-out"—which means that if you missed a recent letter from Macy's explaining that they were going to open a credit card for you, you can expect a Citibank Mastercard in the mail

[...]

As far as we can tell, Macy's is taking advantage of an "information sharing" clause in their original store card agreement. The clause states that Macy's is allowed to share information with Citibank as an "affiliate" of Macy's. Opting-out of the information sharing agreement requires calling or writing Macy's. We suspect few card holders bothered.

---

In the comments, it's reported that this has occured with many other retailers.

So I'm wondering, should I just skip getting a store card?

Message Edited by pdxuser on 02-21-2008 06:01 PM

[haulingthescoreup]

Wow, a researcher!

I was always skeptical of the benefits of a store card, because the way that I read the FICO education part, it made it look like a store card was the initial step in building credit. I questioned this on a thread, and Timothy, I think it was, posted that he got a 20-point score jump for opening a store card.

So, I dunno. I think they're a PITA, unless they really fit a niche in your shopping patterns, but I went ahead and got a Home Depot card. But the J.Crew card is going down in flames sometime this summer. Hear that, WFNNB?

[pdxuser]

Hm... add 20pts, subtract 20pts, whatever. I wonder if the extra 20pts could have been from a lower util? What are other people's experiences in getting a store card (NOT a store-branded Visa/Disc/etc.)? And what is this little magic FICO estimator thing I keep reading about that lets you edit your credit report and see what happens? Would that be helpful to see how a store card affects a FICO score?`

[haulingthescoreup]

My time machine, where I can rewrite my credit history:

http://www.myfico.com/FICOCreditScoreEstimator/Estimator.aspx

edit: note, this is different from the simulator that comes with your FICO EQ and TU score reports. On this one, you can create your own little fantasy world. Needless to say, the projected scores are even more broad than those on the sims.

Message Edited by haulingthescoreup on 02-21-2008 06:39 PM

[Anonymous]

---

pdxuser wrote:

Hm... add 20pts, subtract 20pts, whatever. I wonder if the extra 20pts could have been from a lower util? What are other people's experiences in getting a store card (NOT a store-branded Visa/Disc/etc.)? And what is this little magic FICO estimator thing I keep reading about that lets you edit your credit report and see what happens? Would that be helpful to see how a store card affects a FICO score?`

---

The simulator doesn't have an option to experiment with store cards.

Having a store card vs. not having a store card factors into your mix of credit.  Mix of credit only accounts for 10% of your score, and also includes many other aspects of your report, like whether you have a mortgage, whether you have another installment loan, whether you have a major bank card etc etc.  Ultimately this question (whether to get a store card or not) accounts for a very, very tiny piece of your score.

My opinion:  There are only a couple of reasons to get a store card.  1) You need to establish a revolving history and nobody else will give you a credit card.  OR  2) A store you frequently shop offers a card with a rewards program or 0% financing.  If neither of those apply to you, there's really no reason to get one.

Having said that, I LOVE my Target Red Card (because I'm a frequent shopper ther and it has a decent rewards program), and my Kay Jewelers Card came in handy with a nice 0% for 12 months deal when it was time to buy DFiancee's engagement ring.

Regarding the quotes you asked about in your original post:  Some of them are simply wrong.  I'll address just a few of these points:

1) There is no automatic 20 point drop for getting a store card.  In FICO scoring, it's important to remember that it is always virtually impossible to say "If you do x, you will gain/lose y points."  It just doesn't work that way.  Most of the time, in order to make even an educated guess at the effect a certain action would have on a FICO score, you'd have to know a lot about what the report currently looks like before the action is taken.

2) Yes, Citi did buy the Macy's card portfolio, and a lot of Macy's cardholders were surprised when they received Citi cards in the mail.

3)  Yes, stores are subject to data security breeches more often than the big banks are.  But your data can also be at risk just from shopping at the store with either a credit or debit card.  The risk doesn't just come from having a card issued by the store.  Have you heard of what happened at TJ Maxx?

Message Edited by cheddar on 02-21-2008 06:25 PM

[Dawn]

I haven't followed scores and reports enough to determine if our Kohl's card is "helping" or "hurting" our score. 

But ...  DH and I only had 1 "major" credit card with a $12,000 CL when we qualified for our new mortgage several years ago.  Everything else on our reports (although some accounts are closed and most are inactive) were store cards.  In spite of this, we qualified for the best rates ... as we did when we purchased our first new auto in years. 

I can't see that the existence of "store" cards have hindered us in any way.  But ... I have seen my score drop about 20 points when I only carried a balance on one silly "Revolving" card instead of two.  Of course, this problem exists mostly because that "major" that was reporting as Revolving previously, for some reason reports as a unsecured loan now and isn't factored into my Revolving utilization.  I don't want to battle it though, for fear that they will totally mess it up, so I leave it alone.   

The only place I have seen that really seems to find at least one store card a benefit is the ChoicePoint system that provides data for our auto insurance.  It seems that different industries place a different value on different types of credit.  You just can't win 'em all.

I will still encourage my kids to pick one store card they think they will use for a long time in order to prevent ditching one for another repeatedly over the years.

[Anonymous]

Just wanted to correct myself on one point.

It turns out there is a store card simulation available.  I played with my latest TU and EQ reports, to simulate the effect of "applying for instant credit at a department store."

TU:  Currently 686...simulated 676-696.  Net: +/- 10 points = neutral

EQ: Currently 703...simulated 693-713.  Net: +/- 10 points = neutral

Keep in mind, though, that these reports already have 10 CCs including 2 store cards.  If I had little or no revolving credit, or if I didn't have any store cards already, the simulated results may well be different.

[Anonymous]

I personally have several store cards and haven't seen them hurt me at all.  Opened a Bergner's card (like a Macy's where I live) several years back, opened a Menards card in Nov (like a Home Depot for where I live) my score jumped up a couple of point, and opened a Pet Land card in January and again, my score jumped 2 points. 

[pdxuser]

The myFICO estimator seems to think it doesn't matter if I have 1 CC or 2 (to 4) CCs, as long as I have had the credit for just over 6 months, have never been late, and have 0-9% balance, I'll have a score between 690 and 745. The only thing that hurts is the extra application needed to get the second card, which takes 5 points off the top range and 5 points of the bottom range.

But that estimation is clearly very rough. It's my understanding that if a score is 50 points lower, one is supposedly 5 times as likely to pay late. (An article I found gave an example of a person whose score went down 78 points by opening store cards over the holidays, and claimed that the FICO score means she is considered 8 times as likely to pay late.) What is this estimator that TU and EQ have?

[Anonymous]

---

pdxuser wrote:

What is this estimator that TU and EQ have?

---

When you buy a score and report from MyFICO, the TU and EQ reports come with a score simulator where you can simulate various actions and let it estimate the effect on your score.

For example, you can ask it to estimate what might happen if you paid off a certain amount of your revolving debt, paid x dollars a month for y months, maxed out all your cards, opened a new CC with a given CL, opened a new CC and BT'd all your balances to it, stuff like that.

The simulator typically gives you an estimated range for each simulated action.  The ranges are usually 20-30 points.

In the simulations I posted about above, the net effect on each report was +/- 10 points, which I interpret to mean the action would be neutral for my score.