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 (in foreign countries, the last two might not always be counted since they may not be accepted in a particular country).
- 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%).
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. However American Express and Discover do directly issue most of their cards, so you will see their name listed if you have a card issued by them.
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 card?
It’s not that you can’t get them. It’s just that you don’t want to rely too heavily on them for credit building.
Unlike the average major credit card, a store card is usually quite easy to get approved for. The requirements are much more relaxed and the credit scoring models take this into account.
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 all you had on there were store cards (versus credit cards from respected major banks like Chase, American Express, etc).
The lesson? If the rewards and benefits are decent and justify having an account with them there is nothing wrong with having one or two retail store cards. But it’s also advised to have some major credit card accounts, as well as installment credit (like bank loans, car loans, etc.) as well to optimize your credit over time.
What should you start with?
It’s a catch-22… major card companies are the best to have, but also harder to get. So how do you get one if you’re just starting out?
A beginner 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 August 25, 2014