I always have mixed feelings when the clerk asks me to sign up for a store credit card. First, I feel sorry for the clerk, knowing that she’s probably under pressure to meet a quota. Then, I feel annoyed that refusing store credit has to be part of every shopping experience. Finally, I wonder if I could actually benefit from taking 10-15% off my purchase. Sound familiar?
Some people will benefit from store credit, while others will find themselves in debt. Which one are you? Read the information below to decide for yourself. Instead of listing pros and cons, I chose the old Clint Eastwood movie title because there can be some ugly consequences to using store credit. Let’s go over the list.
The Good
Good for rebuilding your credit or establishing new credit. Store credit is easy to get. If you need to rebuild your credit, you can do worse than getting a store credit card. As long as you pay the card off in full each and every month, you can begin to establish yourself as a good credit risk.
Good for promotions, discounts, and advanced sale notices. Participants in store credit programs can get deals that others can’t. If you frequently buy clothes or supplies at the same store, this could save you money over time. Again, that’s providing that you pay the balance off in full each month and don’t buy items you don’t need.
Good for saving on a single large purchase. Let’s say you’re buying an appliance, all new window treatments, or some other large purchase. A savings of 10-15% could be substantial. Just make sure you can pay it off that month. You haven’t saved a dime, if you have to pay 20% interest on your purchase.
Bad Interest Rates. Store credit cards can have interest rates up to 20%. That means if you don’t pay the card in full right away after that first purchase, you haven’t saved 15%, you spent an extra 5% for your purchase. Some deal, huh?
Bad Balance to Credit Limit Ratio. They usually have a small credit limit, which means you can reach the ceiling after just a few purchases. That’s not good for your credit score. You want to keep the distance between your balance and your limit as wide as possible.
The Ugly
Lower credit score. It’s one thing to use the card for a one-time purchase, or to get store credit at your favorite department store. It’s another to pick up a card at every store because you think you’re getting a deal. What are the consequences?
Every time you apply for a store credit card, your credit report is pinged. Usually, that means your score drops 30 points for each application. Your score will right itself in time, but, why take the risk? Your life can change overnight. You might not have months for your credit score to improve, if you suddenly need a new residence, job, or car.
Temptation. There’s something about hearing the words 15% off that can make a shopper temporarily insane. We find ourselves buying items we don’t need or even want. Having multiple store credit cards can lead to spending that exceeds your budget, which can keep your long term goals permanently out of reach. Which is more important: buying something right now or staying out of debt? Can you trust yourself to make the right decision?
Store credit isn’t evil, and it can even be helpful. But, it has hurt people who weren’t prepared to face the interest rates and temptations. Make the right choice for you. Know your own spending habits and use your credit wisely.
Jill Russo Foster a nationally acclaimed speaker and author of Thrive in Five: Take Charge of Your Finances in 5 Minutes a Day. She provides practical tips for every day finances. Learn more about protecting your credit and living within your means, with Jill’s popular free reports and bi-monthly ezine at jillrussofoster.com.
Comments on this entry are closed.