How COVID-19 could disrupt store credit cards

Pointing to research from Equifax, Rossman said the average FICO credit score approved for store credit cards has increased over time. Though they aren’t as selective as bank-issued credit cards, financial firms have raised their standards on which borrowers can access these cards, he said. 

Unlike before the Great Recession, consumers haven’t borrowed excessively and financial institutions’ underwriting for consumer financial products overall has been more disciplined, Zawacki said. Tim Howes, associate professor at Johnson & Wales University, said that some consumers are taking advantage of forbearance programs and have used their stimulus money to pay down credit — maneuvers which preserve their credit scores and make it difficult to determine who’s truly in good standing. Congress has failed to pass another stimulus package, and more funding may not come until next year, CNN reports[2]

Zawacki noted that so far consumers that have come off financial institutions’ forbearance programs have resumed paying their balances, but it’s not clear whether consumers will continue to pay back those balances or if financial firms will extend such programs. If defaults in store cards begin to rise, at some point banks may pull back further on who they’ll allow to open those accounts, Howes said. 

For consumers with store credit cards, their spending might have shifted from entertainment and travel purchases to other categories, Zawacki said. Home improvement retailers, for example, might see more activity in their store cards as consumers spend more on remodeling or other home improvement projects, he said. 

“The retail card market was declining well before the pandemic and that could well persist afterwards.”

Ted Rossman

Industry Analyst at

Schulz noted that the CompareCards research indicated a divide between affluent and lower-income consumers. For well-off consumers who like to shop, the high interest rates aren’t as bothersome because of the rewards. Store cards can be attractive to less financially stable consumers or those who need to build or repair their credit, Schulz said. For the latter of the two, retail credit cards can be a stepping stone to improving their credit and perhaps avoiding less desirable financing options, he said.

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