Why Store Credit Can Be a Bad Idea
by JennaWell, it’s July. And you know what that means? It’s all downhill to Christmas from here!
Since major retail stores feel it’s appropriate to begin celebrating Christmas in July, I thought we could have a quick conversation about some of the common store credit offers, and what they could mean to your credit score.
From here on out, you can expect to be deluged with 90 days same as cash, zero money down, “Save 40% if you apply today!” offers.
So, they’ve got you there, at the checkout, already worrying about how you are going to pay for all these expensive gifts, when they spring it on you: Just fill out a quick application and you can save as much as 40 percent on your total purchase!
“Yes! “ You think,” I’d love to save 40% today! That sounds great.”
Well, if you fill out that application, several things are going to happen:
- You get an inquiry on your credit report. In some cases, this alone can lower your score up to 12 points.
- You get rejected for the card because you don’t know your credit score, and whoops, now you have an inquiry and a rejection.
- Or, you get approved! You save 40 percent, and eat the inquiry cost to your credit report. You are now the proud owner of a credit card with a 24% interest rate!
So, before we gear up for the spending season, let’s take a little bit of evasive action:
- Pay down or pay off a Visa or MasterCard with a reasonable interest rate.
- Set an amount you are comfortable charging. Hopefully it will be an amount that you can pay off within the first month, or no later than the second.
- Designate that card for your Christmas expenses.
- If possible, make it a cash back card so that you at least get some reward for charging.
- If you do plan to apply for store credit, pick your stores carefully. Don’t just jump on that spur-of-the-moment offer. Make sure that opening that retail account is what you really want to do.
Most of all, remember that before you apply for any sort of credit, it never hurts to get a copy of your credit report, and check your credit score.
What about you? Do you think it’s too early to start thinking about Christmas? How do handle your Holiday budget? Do you ever regret what you charge, or do you have it well in hand? You can give us your opinion below.
July 8th, 2008 at 22:18
If you have visa or mastercard you should be ok without store cards. Just use store cards to begin your credit then get your visa nad mastercard.
July 17th, 2008 at 14:50
I agree that store credit cards are generally a bad idea — the modest potential savings may be outweighed by the costs to your credit report and what not. That being said, I think there are certain circumstances when a store card can make sense, particularly when you’re frequently spending a significant amount of money at one merchant, as the store card can *sometimes* offer better rewards at that store than you’d be able to get with any other cash-back/rewards credit card, plus these cards sometimes have worthwhile coupons.
Anyway, I agree with your bottom-line advice to think carefully about opening a store credit card.
July 17th, 2008 at 19:29
Richard
Thanks for your comment! I do agree that sometimes store cards can offer nice rewards. Now some stores are even coming out with Visa and Mastercard “Store Cards” that allow you to charge anywhere while earning rewards at those stores. That might be a different ballgame – something I’m going to have to investigate.
Thanks for stopping by and giving us your opinion!