Although most retailers offer customers the option to open up a store branded credit card account year-round, there are certain times when there is a more concerted push made to encourage people to indulge in a new line of credit - the holiday shopping season is one of these times. Loaded with enticements such as a certain percentage discounted from your current bill, exclusive invitations to special sales and giveaways doled out an a regular basis, opening up a store credit card can seem like an excellent, practical idea, especially in the heat of the shopping moment.
However, consumers should be aware that often times store credit cards are specifically marketed towards subprime borrowers and individuals with poor credit, while tending to come with low credit limits and high APR’s - both things that can potentially drag down your credit score. Resist the urge to impulsively open up a new line of credit without knowing all the facts first. Here are some things to pay attention to:
Take a good look at the discount.
While the thought of saving 20% on your first purchase may hold some appeal, do the math to figure out how much you stand to actually save to see if it’s worth it. If you are making a large, expensive purchase, 20% off has a much more significant impact, which may make opening the card worth your while.
Ask about no interest.
Find out if the store offers some sort of 0% interest promotion
. Occasionally, store credit cards have a 0% APR promotional period lasting anywhere from 6 to 12 months. As long as you submit all of your monthly payments on time, you won’t be charges any interest on your balance during that period. This could be helpful if you are looking to purchase an expensive item – as long as you manage the payments responsibly and pay everything off before the promotional period ends. Otherwise, there is the potential for you to be charged retroactive interest on the whole balance.
Examine the APR.
Store credit cards are notorious for having incredibly high interest rates, typically upwards of 20%. If you decide to open up a store credit card account, you must pay off your balance each and every month or else your initial savings will be completely erased by high interest charges.
Know your limit.
Find out the credit limit on the card, because store cards generally come with very low spending limits. This makes it easy to run up a high balance on a low limit, which has a negative impact upon your credit score.
Don’t ignore your other options.
There may be much better credit card options available, ones that will avail you of better perks in the long run. Aside from the initial discount, are there other awards or perks attached to the card?
If you plan to open up a store account to take advantage of the discount or no-interest financing then close the account once you have paid the balance off, know that shutting down a recently-opened credit card account can cause a dip in your credit score. However, if terminating the account will eliminate the urge to overspend and purchase things you don’t need then closing down the account is perhaps your best option.
Always read the fine print!