Q: I’ve been told that it’s important to have “major” cards to achieve a good credit score. The question is, what’s considered a major credit card?
A: Great question. When it comes to your creditworthiness, not all of your cards will be considered equal. There are two types by definition:
- Major Credit Cards: In the United States, this consists of cards which operate over the payment networks Visa, MasterCard, American Express, and Discover. However, having a debit card that is run on one of these networks does not count, unfortunately. At least not in terms of building credit.
- Store Credit Card: A card which is branded through a department store, gas station, or other retailer. These can only be used at the affiliated store because they do not operate over a major payment network. Beyond their limited utility, store credit cards typically charge much higher interest rates (usually north of 25%). Store cards are also known as private label or closed loop cards since they can only be used at the retailer that issued the card.
So when people talk about “major” they’re referring to Visa, MasterCard, Discover, and American Express. For credit building purposes, it’s recommended that you at least two major credit cards. Major credit cards are also known as general purpose or open loop credit cards because they are accepted globally across millions of merchant locations.
Which is the best major credit card?
When it comes to your credit score, there’s absolutely zero difference between MasterCard vs. Visa vs. Discover vs. American Express. Why? Because that label won’t even show up on your credit report! Instead you will see the name of the issuing bank, like Citi, Chase or Bank of America.
For example pictured at the right, you see a Chase Visa and Citi MasterCard account listed on my credit report. But all you see are the names of the issuing bank, not the type of cards they are.
The only exception to this rule is when the issuing bank and payment network are the same company.
Visa and MasterCard do not issue cards (they only operate as networks) so that means you will never see them listed on a credit report. Conversely, AmEx and Discover do directly issue most of their cards to consumers, so you will see their name listed if you have a card issued by these networks.
Either way, all four companies are considered to be major credit cards. For scoring purposes, they all receive equal weight. One isn’t considered “best” or better over another in terms of building credit.
Why not a store credit card?
It’s not that they are difficult to qualify for, it’s just that you don’t want to rely too heavily on them for credit building. The requirements are much more relaxed and the credit scoring models take this into account. They just tend to be of limited use, have small credit limits and carry very expensive interest rates and terms.
If a mortgage broker was evaluating your loan application and looking at your credit report, I don’t think he would be too impressed if your entire credit portfolio was comprised of store credit cards (versus major, general use credit cards from respected major banks like Bank of America, Capital One or American Express).
The lesson? If the rewards and benefits are decent and justify opening a credit account there is nothing wrong with having one or two retail store cards. But it’s also advisable to have a few general use credit card accounts, as well as installment credit, such as a car loan, in order to optimize your credit over time. This is because the credit scoring models place weight on not just the total amount of credit but also values different types of credit.
What should you start with?
Unfortunately, it is a classic catch-22… major credit cards are the best cards to have but also more difficult to attain. So, how do you get one if you’re just starting out?
Someone new to the credit world with little to no credit history probably won’t be approved for a mid-tier or high-end card. However, you should have a good shot at qualifying for these cards for fair credit history.
If you already have an established credit history but you’ve dropped the ball a few times (such as having multiple charge-offs or a bankruptcy) then you may have to start out with a credit card that is secured.
Written or last edited on February 1, 2016