We see these offers every day – if you apply for the store credit card today, you can save an extra ten or fifteen percent on your current purchase. But will applying for a store credit card come back to haunt you? Read on so we can tell you what you should know about these offers.
At stores everywhere in the nation you can find smiling associates giving you a sales pitch at the register. Store credit cards are a big money maker for these businesses, and in hopes that you will apply for one, discounts are frequently offered along with them.
[Read: Buying Strategies to Save More Money Shopping at the Store]
It can be tempting to accept these offers for the great discounts or other reward systems, and many people frequently fall for them. But at the end of the day is it a good idea to get a store credit card?
Store Credit Cards: the pros
Store cards aren’t entirely bad. The benefits that can come with them are sometimes very lucrative. There are four key ways in which store credit cards can be a good choice.
- The Discounts: To start with, you get the ten or twenty percent discount as a sign up bonus. Some cards even have continuing discounts throughout the year. And store credit card holders can sometimes be the first to receive extra special coupons or exclusive sales as a bonus for signing up for the card.
- There’s Flexibility: Not all credit cards have this flexibility but many do. Some store credit cards have affiliations with major credit card companies, and can be used for purchases elsewhere. Programs vary but some allow you to earn reward points that can add up and be redeemed for discounts later on in the store.
- Credit Score Benefits: A store credit card can help when your credit score needs to improve. By regularly using and paying off your store credit card, it can greatly help you in establishing good credit habits that will eventually boost your score. This is also helpful if you have never used credit and do not have a credit score.
- Financing: Some stores allow credit card holders to have zero percent financing with up to 18 months of no interest.
Store Credit Cards: the cons
So we have seen the perks of having a store credit card. But now it’s time to look at some of the negatives that accompany one of these cards.
- High Interest Rates: The greatest con of having a store credit card, by far, is that they tend to have very high interest rates. With an average APR around 23%, with some going as high as 30%, they really do not have this aspect working for them. Additionally, some of these cards which offer 18 month financing will charge you the entire accrued interest if you do not pay off your card within the time frame, instead of starting to charge you interest when the 18 months is up.
- Limited Use: Most store credit cards cannot be used at other locations other than the particular retailer who issued them. You may also have an excruciatingly low spending limit. Either way it is questionable whether or not this is worth it.
- Credit Score Damage: Each time your credit score is pulled up for a credit card application your credit score suffers a little. Additionally, if your balances are too high or if you get denied repeatedly for cards, this can damage your credit score before you even have a credit score. Creditors consider both how high your debt is and how high your limit is.
- Temptation: Credit cards tend to encourage you to spend more. This is, of course, a strategic move on the part of the store: they know that you are more likely to spend more at their business if you are not actually paying for your goods at that actual time. They are also hopeful that the rewards, benefits, and perks associated with their credit card will keep you coming back. The extra sales discounts that they offer exclusively to you as a card holder also encourage you to spend more.
- Better Deals In Other Places: You have to take into account that rewards from some places can be better than others. Some cards offer things like air line miles as part of their rewards package, where as others only have something as basic as a one time sign up discount. Don’t let yourself be conned into signing up for a store credit card with worthless benefits when you could find better elsewhere.
[Read: Buying Strategies to Save More Money Shopping at the Store]
What is the Bottom Line here?
So we started out with the question of whether or not you should sign up for a store credit card. We looked at both the pros and the cons, and now we have to make a decision.
At the end of the day it is still advaseable not to open a store credit card. But even with that said, if there is a store you shop at all the time, and the card gets you a great ongoing discount or rewards, then it can make sense to get that store’s card. But remember a few rules: Only buy what you can afford to pay back now. And pay off the entire balance each month.
But if you ever need a refresher on any of this, take a look at this video: