Store credit cards may offer big discounts and rewards, but can harbor a few things that could end up costing you more than the discount is worth. This post explores the dangers of this type of store co-branded credit cards and shares some useful advice on how to avoid making a wrong decision when registering.
The Allure and the Trap
We all know how appealing store credit cards can be when they promise big discounts (sometimes on that day’s shopping trip!) or bulked up rewards. But the efficiency they offer is expensive. These cards generally feature substantially higher interest rates than traditional credit cards, some as high as 30% and even more.
That in turn means that, unless you can pay off your balance in full every month (a sum which will usually include both the purchase and any interest on it), you’ll soon be racking up hefty interest payments at well over 20% — quite likely wiping out any ‘saving’ that arose from the initial discount. Store credit cards also typically have lower credit limits than general use credit cards, which means they’re easier to max out and hurt your credit utilization ratio (the amount of available versus used credit you have), an important factor in your score.
Effects on Your Credit Long Term
Store Credit Cards Can Damage Your Credit Score_STORE_YOURS Opening a Store Credit Card Application-Store credit card applications usually involve the lender checking your credit report using a hard inquiry, which can hurt your credit score briefly.
Also a high number of open accounts could potentially be damaging to your credit score, and multiple store cards can do just that. Though you pay the cards responsibly and make them on time, having so many credit inquiries and open accounts can even still become more difficult to acquire loans or other credit products in later times with favorable terms.
Worse yet, if you find that making the payments is a challenge or miss them altogether, those late payments and defaults will be reflected on your credit report and drag down your scores further, meaning it may be even more difficult for you to access competitively-priced credit in future.
Conclusion
Store credit cards may offer some attractive ways to save money or earn rewards, but in the end, their long-withstanding implications and hidden costs can wreak havoc on our finances. When considering whether to apply for a store credit card, you should assess the benefits compared with the risks of doing so and also explore other potential sources of credit that might be better suited to your situation. If you know what to look for, you can stay away from the temptation filled with shop credit cards and protect your credit identity for a better tomorrow.
