5 Reasons not to apply for a store credit card.

You’re at the cash register at your favorite store at the crowded mall, doing some late Christmas shopping, when the friendly cashier asks the inevitable question, “Would you like to open a store card and get an additional 20% off your purchase today?”

 

You look at the pile of your things and do the math – saving 20% on the bill would add up to enough to buy you a nice lunch AND a Starbucks for the ride home.

 

“It only takes two minutes to apply,” the cheery worker says, handing you a clipboard with the simple 5-line application.

 

“Sure, why not,” you answer, ready for that free lunch.

 

Wait!  Stop!  This scenario is played out millions of times during the holiday season and throughout the year, with virtually every big retailer offering store credit cards these days.  But even though it seems like a hospitable offer for a generous discount, there are some things you need to know about retail credit cards before you sign that application and take the plunge.

 

 

1. High Interest Rates

Average credit card interest rate is about 15%, which is still very high, but most retail cards charge rates well above 25% or more, all the way up to 30%!  There also might be hidden fees and terms that bring the APR – the true Adjusted Percentage Rate – way higher!

 

2. Your credit score. 

A lot of retail cards won’t even do a thorough credit check before approving you for a store card, but even when they do, it could be detrimental to your credit score.  Too many inquiries of a certain kind – especially applying for credit cards or revolving retail debt – can lower your credit score.  Likewise, if you are declined it looks bad on your credit, and if you do get the card and actually use it, you could be creating another credit problem.  Retail cards typically have low balances so even buying a few Christmas presents on the card could run up your balance to available credit ratio, and lower your score. 

 

3. You only can use it one place.

Of course you can only use your new retail card at their store,  which means you either have an extra piece of plastic in your wallet (and on your credit report) that can only turn into a liability, or you’ll end up visiting that store more and overspending.  In fact, the stores know that a certain percentage of shoppers will turn right around and go back into the store to buy more, once their credit application is approved, preying on their perception of getting a discount.

 

4. You'll spend more.

Of course the stores don’t offer these cards as conveniences – their intensive research shows that they’ll make far more money of each customer in the long run if they take out a card.  You’re likely to spend more each time you buy, likely to visit the store more, and will pay far more in interest and fees than the small percentage you save at the point of purchase. 

 

5. Why not a general rewards card instead?

If you really want a new credit card that offers some sort of bonus for usage, why not take a time out when you’re under pressure at the register and instead go home and do some research.  There are plenty of genera use credit cards that give rewards like flight miles, bonuses, and even cash back. They all come with pro’s and con’s, so do some digging from neutral sources on the Internet to compare and decide which card is best for you.

 

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If you do frequent a store a lot and love their merchandise, go ahead and take out a store card only after standing aside (not at the register under time pressure) and reading their full credit agreement. Make sure you pay it off in full (or almost) every month, which allows you to avoid paying high interest.