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Store Credit Cards: Why the Buyer Should Beware

Store credit cards can be bad news

“Would you like to save 15 percent today?” It’s the rare person who’d say no to that question. But, typically, the only way you get that discount is by opening a store credit card. It might seem like a fair trade off: you save money, and the retailer gets another card customer. Regardless of whether your credit history is strong or you’ve only recently pulled yourself out of debt, opening store credit cards is usually not the best idea. Many store cards are laden with traps that can hurt you if you’re not careful.

Through-the-Roof Interest Rates

A discount of 10 to 20 percent might seem great until you look at the interest rate charged by the card. According to Consumer Reports, the average store credit card charges a rate that’s well above average. If you read the fine print, you might find that the interest rate is as high as 30 percent. If you don’t pay the card off in full, the 10 percent or so that you saved on your first purchase will pale in comparison to the interest you’ll end up owing.

Damage to Your Credit Score

The amount of new credit you have makes up 10 percent of your credit score. That means that a day spent shopping and opening new store credit cards at several retailers can cause some damage to your score. The damage isn’t permanent, but it can have a negative impact on your financial goals. For example, if you hope to get a mortgage and buy a house within the new few months, or if you are trying to restore your credit and learn to manage debt more carefully, a shopping spree that involves opening one or more new store accounts can do more harm than good.

Do You Even Like the Store?

Another potential downside to opening a credit card at a particular store is that you might not even be a big fan of that store. For example, you might have just stopped into a retailer to buy a present for a friend. If you open a card with that store, you might find yourself shopping there more and more frequently in order to take advantage of the discounts or offers the card provides. You might also turn to that store first when making a purchase, even when there’s a better deal somewhere else.

Making the Most of a Card

When it comes to store credit cards, it pays to be a smart shopper. If you are going to open a card to take advantage of a discount offer, make sure you have the money in the bank to pay off the card in full before the grace period is over. Carefully review the perks the card offers when you decide if you want to open one or not. For example, the rewards offered by the card might not be very impressive or might only be available to people who spend more than a certain amount each year.

Learning as much as you can about the credit card, from the interest rate to requirements for any rewards, is an important part of making an educated decision. Don’t be lured in by a discount offer. Take time to decide whether a store card is really the best option for you.

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