Do Department Store Credit Cards Help Rebuild Credit?

If you've had problems managing credit, such as making late payments on a credit card or having an account placed in collections, your credit score likely suffered. With a low credit score, you'll have a hard time getting approved for top-rate credit cards and loan products. You may get approved for smaller credit card products, such as department store cards, which can help you rebuild your credit if used wisely.

Basics

A department store card works like a traditional credit card. You apply for the card through the department store. The store will review your application, including your credit rating and income level. If you're approved, the department store will give you a credit limit. You can use this limit to purchase goods at the department store and make monthly payments on your balance, or pay it off each month.

Improving Credit Scores

Opening a department store card will add to your total available credit, which can improve your credit score. Once you began spending on the card, you can also rebuild your credit by making monthly payments on time and keeping your balance low. MSN Money recommends keeping your balance below 10 percent of your available credit for the best effect on your credit score. Both your payment history and your total debt appear on your credit report, which effects your credit score.

Hurting Credit Scores

If you do not manage a department store card responsibly, you can damage your credit score even further. For example, if you do not make your monthly payments on time, the store may report this to the credit bureaus, which will lower your score. If you carry a high balance on the card, it will affect the total debt balance on your credit report, which will also lower your credit score.

Warnings

Some department stores may not report your card activity to the three major credit bureaus. Ask the department store's credit department if they report monthly to Equifax, TransUnion and Experian before applying for the card. If the department store does not report your activity, it will not help you rebuild your credit score.