Are store credit cards worth opening in order to save 20 percent on your bill? Not usually, but there exceptions. Here’s what you should consider:
Your Credit Score. Retail credit cards can lower your credit score. Each application for a new credit card triggers an inquiry on your credit report, which can lower your score by 10 to 30 points. The more cards you apply for, the more it will hurt you. People with a lot of store cards tend to be riskier borrowers, and that will definitely affect your score. An inquiry will stay on your credit report for up to 2 years even if you never activate the card! And closing accounts doesn’t help, either.
On the other hand, if you’re looking to establish or rebuild a credit score, retail cards can help. Retail store card issuers are known for being more lenient when it comes to getting approved. As long as you pay your bill on time and don’t carry a balance, it can be a great way to build your credit.
Credit Limits. Credit limits on store cards are usually pretty low – about $1,000. If you max that out, or get close to it, it can hurt your credit score. At just $1,000, that’s easy to do. Try to keep statement balances on all your cards under 30 percent of the credit limit.
Are you applying for a loan in the next year? New card applications lower the average age of your accounts, which affects the length of your credit history – which makes up 15 percent of your FICO score! According to Bankrate: ‘The reduction in credit score can come back to haunt people who apply for loans the following year. People with borderline-excellent FICO scores of 750 or 760 might get bumped down to the next best rate — all because that store card application cost them points they couldn’t afford to lose.’
Do you shop at the store often? If it’s a store you shop at frequently, it may be worth opening a card. Not only will you save with the initial discount, you’re also likely to receive future discounts, exclusive shopping days, and other rewards that benefit card holders. A lot of stores, like Express, Macy’s, and Kohls, offer cash back, returns without receipts, and discounts up to 30% when you use the card. But you can also sometimes get the same offers in the mail – without a card. Just ask the salesperson or visit the website to see if the store has a mailing list.
Is it a co-branded card? In other words, does the card bear an American Express, Discover, MasterCard or Visa logo on it? These cards have rewards programs that go beyond in-store perks! According to BankRate, the Sears Gold MasterCard allows you to redeem points on round-trip airline tickets, among other items. The TrueEarnings Card from Costco and American Express offers cash back for purchases, including 3 percent for gas and restaurants, 2 percent for travel and 1 percent for everywhere else.
The high interest rate. Retail cards usually have APRs of at least 20 percent, and it usually doesn’t even matter what your credit score is. So if you tend to keep a balance on your card and not pay it off in full each month, steer clear of store cards. A high interest rate will cost you.
So should you apply? Well, it all depends! If you’re applying for a loan in the next year – no. If you pay your balance every month and won’t overspend – yes. Either way, don’t say yes on the spot. Take the information home and see how it stacks up against other general-purpose cards, and always weigh the pros and cons of each card!
