If you make a purchase at a department store or another type of business, an employee may ask you if you would like to sign up for a store credit card that can be used exclusively to buy items at that chain. Doing so can offer benefits and save you money, but it can also cost you.
You May Qualify for Substantial Discounts
Often, when retailers offer a store credit card, they sweeten the deal by providing a discount on items that are being purchased at that time. If you’re making an expensive transaction, that initial discount can save you a significant amount of money.
Retailers typically reward loyal customers by providing ongoing opportunities to save. After you sign up for a store credit card, you may regularly receive additional discounts and coupons that consumers without store credit cards don’t get. You may be able to use those discounts on items that are already on sale.
You May Pay a Lot in Interest
Store credit cards tend to have higher interest rates than traditional credit cards. If you’re disciplined and you pay off your balance in full each month, that won’t be a problem. If, however, you carry a balance from month to month, those interest charges can add up. Even if you get discounts at the time of purchase, the total you wind up spending in interest may be much more than the amount you save.
Your Credit May Improve, or It May Suffer
If you have a low credit score and you’ve had trouble getting approved for a traditional credit card, you may have a better chance at getting a store credit card. Since store cards have higher interest rates, they have less stringent guidelines to qualify. If you get a store credit card and use it responsibly, you can build your credit.
Any time you apply for a new line of credit, the business checks your credit. A hard inquiry is reported to the credit bureaus, and it causes your credit score to take a small hit. If you have too many hard inquiries in a short period of time, that can cause more harm and can make it difficult to qualify for another form of credit, such as a mortgage or a car loan.
The credit limits on store credit cards are usually lower than the limits on traditional credit cards. If you don’t pay off your balance in full each month, you may quickly find yourself approaching your limit. A high credit utilization ratio (percentage of available credit you are using) can hurt your credit score.
Is a Store Credit Card Right for You?
Applying for a store credit card may or may not be a wise move. It depends on your circumstances and how you would use the card. Weigh the pros and cons carefully before you make a decision.
