Merchant accounts are accounts with local merchants or store credit such as furniture companies, or small local department stores. These could also be national department store chains that offer a credit card. The issues here are that they are department stores and they do not list high on the credit bureau listing for quality. The more national they are, the more they will rate in quality.

There is a tendency for these stores to offer a discount when you go the cash register. I think the hint should be that it is called a “cash register” not a “credit register”. Anyway, the store will offer a 10, 15, or 20% discount on that purchase if you sign up for their credit card. It actually becomes a trap and will cost you considerable money if not taken seriously into account with what you already have in the way of credit and what types of credit you have. The point is this, if you don’t need it for establishing credit, don’t be suckered into getting just because of the discount. It costs you in points because of inquiries, new loan, new loan without history, new loan with a balance, department store credit, etc.

The solution is not to be enticed and to know before hand whether it is a good idea to have a department store credit on your credit report or if it will cost you points for having it on there. Unless you have no credit and it is a national department store with a good reputation, it probably is not worth it to have it in your portfolio. If you are just starting out getting credit, it might be worth going and seeing if you qualify for a national bank credit card or a reputable national credit card first before resorting to a department store credit card and credit card merchant accounts. If it is the only thing you qualify for, then it is worth it and will help to establish your first credit that can be added to later after you have established a track record of paying on time and keeping balances low.

A word of caution to women. Unfortunately, because studies have shown that women do have a tendency to overuse department store credit more readily than men, the credit bureaus do take points off if women have more department store credit cards than other types of credit. All the other rules apply as well. Keep only one or two at most and keep the balances low and raise the limits on those cards as a way of reducing the negative effect of department store credit cards in your credit portfolio.

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