Why Are Store Cards Considered Subprime?

[Anonymous]

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?

[Shadowfactor]

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.

[Physh1]

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.

[longtimelurker]

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@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.

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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.

[Shooting-For-800]

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.

[sarge12]

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@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?

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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.

[Kforce]

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@longtimelurker
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

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

[longtimelurker]

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@sarge12 wrote:

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@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?

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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.

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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.

[sarge12]

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@Kforce wrote:

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@longtimelurker
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

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

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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.

[longtimelurker]

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@sarge12 wrote:

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@Kforce wrote:

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@longtimelurker
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

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

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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.

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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.