“Would you like to save 15 percent on your purchase?” It’s a rare person who’d say no to that! But, that seemingly innocent question is typically followed by an offer to open a store credit card. You may be wondering, should I get a store credit card? On the surface, the offer could seem like a fair trade off. But dig a little bit deeper and you will often find that opening store credit cards aren’t a wise financial choice. Let’s talk about the hidden pitfalls.
Pitfalls of Store Credit Cards
Through-the-Roof Interest Rates
A discount of 10 to 20 percent might seem great, especially if you are making a larger purchase. That is, until you look at the interest rate charged for a store credit 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.
They May Damage Your Credit Score
Any time you open a new line of credit, your credit score may take a hit. 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.
Store Cards are Limited
Another potential downside to opening a credit card for a particular store means you can only use it at that store. Unlike a traditional credit card, you can’t just use it anywhere that accepts credit. This limit means it may not be a useful choice, especially if it’s not a store you frequent.
They Encourage You to Overspend
It’s inevitable — open a credit card through a store and they will start sending out special offers that encourage you to shop more often.
If you end up spending money to avoid missing out on an enticing deal, you’ll end up overspending. And, if you can’t afford to pay off your balance in full each month, you’re stuck with high interest debt and a potentially high credit utilization.
Make The Most of a Store Credit 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, or to save on a big ticket item, carefully weigh the pros and cons to ensure that it truly makes sense for your situation. Be sure you have the money in the bank to pay off the card in full before the grace period is over to avoid paying high interest rates.
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.
The team at CESI is committed to helping you make wise financial decisions and to helping you understand how to get out, and stay out of debt. For a free debt analysis, contact us and find out how we can help.