Without fail, every time you check-out at department, big box, or retail chain store you’ll be offered a quick savings if you sign up for their store credit card. Saving money upfront may be tempting, but you should think twice.
#1 Most store cards have higher interest rates than other cards, which will likely cancel out any discount you received at the checkout counter.
#2 Although the interest rates and incentives may vary, they all have the sole purpose of encouraging you to spend more at their store. To receive their benefits (coupons, discounts, early bird sales, etc.), you have to spend money at that store.
#3 Some store cards can also damage your credit score. An ideal credit utilization rate is 30% or less (any higher will negatively impact your credit rating). If you open up a store card with a $1000 limit and spend $400 on a new couch, your utilization rate will be 40%, which will negatively impact your credit score.
When might a store card be a good idea?
If you’re just starting out and trying to build up a credit card history, a store card issuer’s application standards are lower than most other cards and therefore, can be a good way to get started. The trick is to use the store card wisely:
- To avoid the pitfall of higher interest (#1) always pay off your balance every month.
- Be sure it is a store that you already shop at frequently so that you are not enticed into buying things you don’t otherwise need (#2).
- To avoid hurting your credit score, never carry a balance on your store card more than 30% of your balance limit on that card (#3).
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