Why is it Easier to get a Store Credit Card?

Make a purchase at any many stores and the cashier may ask you if you want a credit card issued by the retailer. Most store cards are easy to qualify for and entice you to sign up by offering special offer available only to customers with a store credit card. Congress passed legislation in 2010 to make it harder for stores to offer credit accounts.

Profitability

Store credit cards usually have a very high annual interest rate not unlike a subprime credit card, according to The New York Times. When creditors can charge high interest, the account becomes immensely profitable, even when you factor in the high default rate. Most people who go for a store card are probably heavy credit card users, so the store can expect the borrower to rack up debt and maintain a balance.

Increased Sales

Apply for a retail card and the company almost always offers a very large discount on your first purchase and other benefits exclusive to customers with the store brand credit card. This increases sales and when the borrower puts the purchase on the card, raises the cost of the goods sold more if he does not pay off the charge within the grace period.

CARD Act Effects

The recession of 2008 and credit card reform with the CARD of 2010 makes getting a retail card harder. Balances on private-label cards dropped $114 billion to $94 billion between 2007 and 2009, according to First Data. As a result, retailers lowered limits in 2009. In 2010, Congress reduced regulation of the private-label credit card industry by allowing companies to estimate income. Thus, instead of requiring a W-2 or pay stub, the retailer can predict income based on the data in your credit report or some other statistical model.

Tip

Signing up for a retail card just for the discount is usually a poor idea, because many retailers offer the same discount for other, free services, such as giving your email to get the company newsletter, according to Bankrate.com. The low credit score requirement of these cards, however, makes them ideal for rebuilding credit history, because a traditional bank card is probably out of reach for someone with a tarnished credit record.