Opening A Store Credit Card To Get A Discount? Know What You’re Getting Into — And What You’re Getting Out Of It
With first-time guests coming for dinner, maybe you’re feeling the pressure to purchase a cappuccino machine. Or you just can’t seem to walk away from that pair of designer shoes you love. Or maybe your bros will have little interest in coming over to watch the big game if you don’t have a big TV. Well, you could save a few bucks on these, and other items, if you open a store credit card and get the discount that’s being offered to first-time cardholders. But is it really worth it? Will it help or hurt when it comes to building your credit? Will you end up with more buyer’s remorse than buyer’s rewards? Read on to get some answers.
Why Store Credit Cards Draw You In
Closed-loop credit cards, like being offered at stores, can only be used at a certain retailer, while other store credit cards are co-branded with a sponsoring retailer but feature a Mastercard or Visa logo and can be used wherever credit cards are accepted. On the plus side, requirements for getting approved for a store credit card are usually less stringent compared with regular cards. So if your income us a little on the low side or your debt a bit on the high side, you still might qualify for a store card. Another bonus: Because payments on these types of cards are usually reported to the major credit bureaus, store cards can help you build a credit history.
Store Credit Card Drawbacks
Before you sign up for a store credit card, know that these types of cards have some drawbacks. To begin with, the interest rates on store cards are usually higher than those of a regular credit card. According to the 2018 Retail Store Card Survey by CreditCards.com, the average annual percentage rate (APR) for store cards averages 5 percentage points higher when compared with regular cards.
Secondly, that “interest-free” window you’re being offered? You might be interested to know it’s not really interest-free. Most likely the offer includes deferred interest, meaning that if you don’t pay the full balance by the end of the promotional period you’ll end up paying interest not only on what you still owe but also on the entire amount originally charged.
Thirdly, store credit cards usually have lower spending limits than what’s offered with regular credit cards. Thirty percent of your credit score is determined by what’s called your credit utilization ratio, which refers to the percentage of open revolving credit that you’re using. Carrying even a small balance on a store card can have a significant impact on your credit score.
Perks That Pique Your Interest
Sure, the credit card offer sounds good: sign up and get a discount or cashback, a bonus or travel points. But keep in mind that any perks you receive when signing up for a store credit card will be quickly erased if you start paying interest on your card balance or spending money you wouldn’t otherwise.
Before you take on a new card, be sure to consider all the facts. Research interest rates. Assess your budget and spending habits. Weigh the pros and cons. Then give yourself credit for making an informed, carefully reasoned, and financially sound decision.