Dear Credit Card Adviser,
My question is what's the best type of credit card for my credit score? Do I get more points for having, say, a card from a bank or credit union? Do secured cards count as much as unsecured? How about store cards? Thank you.
--Lucy
Dear Lucy,
You may carry a variety of credit cards, but for your credit score there are really just two types: retail cards, which include store and gas cards, or bank credit cards.
"There is a difference -- it's a slight difference -- but there is a difference in how the FICO scoring algorithm treats bank cards versus retail cards," says Barry Paperno, consumer operations manager for FICO, the firm that developed the most widely used credit score. He added in a follow-up e-mail that cards issued by credit unions are treated like bank cards in the FICO formula.
For example, utilization on bank cards has a greater impact on the FICO score than store cards. In addition, not having a bank card on your credit report can cost you a few points in the scoring category that considers your mix of credit.
MyFICO chart
Source: myFICO.com
Not to worry if your wallet doesn't contain any bank cards. "If you have one revolving account on your credit report, you can have a very good score if that revolving account is a retail card. But all things being equal, you can have a better score with a bank card," Paperno says. He estimates that without a bank card people can still earn a score "in the 700s" on the FICO scale, which runs from 300 to 850. Higher scores indicate lower credit risk.
Don't fret if the only bank card you can only qualify for is a secured card, which requires a deposit for collateral. According to Paperno, secured credit cards are treated no differently than unsecured accounts.
Bottom line, having a bank card in your credit mix can raise your score, but not having one won't sink your credit rating. Focus on the bigger factors that make up a good score, such as on-time payments, low revolving debt and sparing applications for new credit.
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