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Store Credit Cards: Are They Worth It?

store credit cardsWith so many credit card options available to consumers these days it can be hard to choose which one is right for you, your budget, and your spending habits. Add to that the fact that credit card companies offer up attractive rewards and incentives to entice you, navigating your way through the credit card maze can feel daunting.

When retailer-specific cards are added to the mix things can get doubly confusing. Some of these cards can be used only at the specific store, and some are affiliated with companies like Visa and can be used anywhere Visa is accepted, as well as at the retailer itself.

When it comes time to make a decision about store credit cards there are many things to consider. Some of the best credit card offers are not store cards, but there are still benefits. If you’re thinking about accepting one of those enticing retail card offers, here are a few of the pros and cons of doing so.

The Pros

Many of the reasons that people sign up for store credit cards is that they usually come with an immediate discount on your purchase. These discounts can sometimes be as high as 20 percent, so that’s doubly attractive if you’re shopping during the holiday season. As a cardholder you may also have access to exclusive sales both online and at the store itself.

Some specific retailers offer amazing discounts for those who carry one of their store credit cards. Target and Lowe’s are perfect examples. Target offers 5 percent off every purchase which is especially handy if Target is where you purchase the majority of your groceries. The card from Lowe’s also offers good discounts and perks, and you have a choice. You can receive 5 percent off all purchases, or you choose special financing terms if you plan to use the card for materials for a large project.

Take a good look at your shopping habits when making this decision as well. If you favor a particular department store over another, consider applying for one of their cards. Bloomingdale’s and Macy’s offer nice discounts for their cardholders, and Bloomingdale’s is especially generous when it comes to cosmetics and perfume purchases. Victoria’s Secret also awards discounts to its card members, and stores in the Gap family do as well.

The Cons

As with anything, store credit cards do come with their own certain set of risks and drawbacks. In many ways, these outweigh the benefits of adding one of these cards to your wallet.

First of all, most store credit cards come with very high interest rates, some around 25 percent. They also come with relatively low spending limits and some amount to just a few hundred dollars. Since you should never utilize more than 20 percent of your credit limit, this can put some cardholders at risk of a negative impact on their credit score, especially if you don’t pay off the balance every month.

Additionally, store credit cards don’t have as much of a good impact on your credit score as a standard credit card does. However, they will have just the same negative impact if you find yourself behind on payments. Also, each time you apply for a credit of any kind there is an impact on your credit score, so for those who are tempted by attractive offers and decide to apply or one or more of these cards, you’ve just dropped your credit rating by doing so.

One of the better options is to apply for a store card that is affiliated with Visa, MasterCard, or another of the major credit card companies. With this type of card you not only get the same deals at your favorite retailer, but you’ll also have the purchasing power of the credit card company which means you can use the card in more places. Interest rates are generally much lower, and you’ll be able to take advantage of the many rewards programs that are offered.

Ask many credit experts and they’d usually advise consumers to avoid store credit cards. The interest rates and the risks are just too high. However, if you do decide that a store credit card is right for you, be sure to monitor your spending closely and pay your balance in full each month. You’ll still be able to shop at your favorite retailer but you’ll also protect your financial status and your credit score.


AUTHOR Derek Sall

Derek has a Bachelor's degree in Finance and a Master's in Business. As a finance manager in the corporate world, he regularly identified and solved problems at the C-suite level. Today, Derek isn't interested in helping big companies. Instead, he's helping individuals win financially--one email, one article, one person at a time.

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