5 Reasons Store Credit Cards Are a Bad Idea

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Why Store Credit Cards Are a Bad Idea

By: Sarah Damon, SavingsAccounts.com

Store credit cards charge high interest, have limited use, and provide fewer benefits than traditional credit cards. Are they ever a good idea?

How many times have you been in a store and the cashier asks if you’d like to save 10 percent today?

It sounds like a good deal — everyone wants a discount. The catch? You have to open a store credit card. Cashiers are trained, and typically required, to present the offer as a smart move. You were going to pay $50 anyway, so why not open the card, save 10 percent, then send in your payment?

More often than not, a consumer will sign up for the card, save 10 percent on their original purchase (plus a few other items they’ll buy to really wring the value from the one-time discount), and then come back to buy from the store again, since they have the credit line. When the bill rolls in, some won’t be able to pay it off, and then the interest charges kick in.

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If you think it won’t happen to you, the statistics aren’t in your favor. Stores offer the discount because they know they’ll get more money on the back end. If it wasn’t profitable, they wouldn’t offer the initial 10 percent.

Reasons to just say no to store cards

For the most part, store credit is a bad idea. Consider the following reasons to avoid branded cards:

1. Sky-high interest rates. U.S. Rep. Anthony Weiner (D-N.Y.) released a report that found that many store-branded cards charge interest rates that are much higher than traditional credit cards — the average store credit card interest rate is 24 percent. You’re more likely to get better rates on a regular credit card, as the national annual interest rate averages less than 15 percent.

2. Too many credit cards can harm your credit score. A few cards probably won’t matter, but stores hand out credit cards fairly easily, and signing up for too many can affect your credit score. According to Experian, credit card inquiries do affect your score, and having a large number of cards also has a negative effect.

3. Limited use. You can only use the card at one store. If you shop at several stores, it could be inconvenient to carry all those cards.

4. Fewer benefits than traditional cards. Store cards don’t usually include the big benefits major card companies give their cardholders, such as extended warranties, reward programs, price protection, purchase protection, return protection, and car rental insurance.

5. Less time to read the fine print. Like impulse purchases, signing up for a credit line without forethought often leads to shopper’s remorse. Opening a credit line is not a decision you should make while standing at the checkout counter.

There are rare cases when a store credit card makes sense, but only for the financially responsible who never, ever miss a payment, always pay the balance in full, and can keep up with rewards and terms. For example, personal finance blogger Frugal Babe opened a Home Depot credit card to save 10 percent off materials for her kitchen remodel, a $200 savings. She also cut up the card as soon as it came in the mail and paid nothing in interest. Most people aren’t able to do this, however, and the retailers count on it.

Original Article: 5 Reasons Store Credit Cards Are a Bad Idea

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