“Would you like to get a store credit card and save 15 percent on your purchase today?” the sales lady’s voice sweetly rings.
You freeze for a moment and wonder — I don’t know, do I? Are there any drawbacks to taking out a card? Can this hurt me? Or is my apprehension unfounded?
Sensing your hesitation, the lady attempts to seal the deal by pitching their rewards system.
Suddenly you’re thinking only about the great discount you can get today and in the future if you use this card, such that it feels almost crazy not to get it.
It can be hard to break out of that mindset at the counter and understand the bigger picture. But it’s not impossible.
When this happens to you (because it is a when, not an if), you can ignore the fluff and decide for yourself if you know the good, the bad, and the ugly of opening a store credit card. Let’s get started.
Things to Think About Before Signing Up for a Retail Card
Pay Attention to Grace Periods
Typical credit cards have a grace period between the end of a billing cycle and the date a payment is due, which allows consumers to make timely payments and avoid interest on their purchases.
However, some store credit cards don’t have a grace period, which means customers begin getting charged interest the day they make their purchase.
Know the card’s grace period before taking one out, or else you could lose a lot of money without realizing it.
Get All the Information on the Promotional Finance Terms
When you’re getting ready to purchase a big ticket item such as furniture, appliances, or a computer, you’ll likely be offered 0% financing for a specified period of time.
This is done so you can take home the item today but pay for it in smaller chunks over time.
But this is not how all store cards work.
Many clothing retailers, for example, offer a discount on your purchase for signing up, but they don’t necessarily offer 0% financing. (Whereas the cards that offer promotional financing don’t always offer a discount.)
Make sure you know exactly what you’re getting into before you sign up so you understand how long you have to pay the balance off before interest hits.
Don’t Forget to Ask About the Interest Rate
Store credit cards may come with a nice discount from time to time, but they also tend to come with above average interest rates.
Many store cards deliver up an interest rate of 20% or higher. If you plan to carry a balance over for more than one billing cycle, that can pretty quickly eliminate any benefit you had from getting a discount.
When entertaining the thought of getting a retail credit card, you’ll need to heavily consider your payment patterns.
Do you diligently pay your entire balance off at the end of each month? Or do you pay your statements off little by little? If you chose the latter, you’ll find that using a retail card is nothing but a burdensome money guzzler.
Consider Other Ways to Get a Discount
If the sign-up offer is marginal, you can ask the checkout person whether there are any other ways to get a similar discount.
There are always sales going on, or promotions for the holidays. You can also often get the same discounts and sales by signing up for the retailer’s online newsletter.
Some people opt to get the store credit card for the low interest and then quickly close it before interest rates or temptation hit.
If you’re considering doing this, know that your credit score will take a small hit, even if the card was only open for a short time.
If you opt to do this anyway, make sure you’re not doing it at a time when you need your credit score to be at its strongest, such as when you’re preparing to buy a home.
Evaluate Whether the Benefits Will Be Worth It
Retail cards all have different offers, some more generous than others. For example, if you make a certain amount in purchases with the card, you may score free products or receive a nice discount.
If you’re getting the store card for a store you frequent regularly, it might make sense to obtain the card and get the discounts.
However, typical credit cards offer a greater variety of rewards, such as cashback rewards, points redeemable through various merchants, or flight miles.
Consider whether or not these types of credit card rewards structures might be better for you than what the store card is offering.
Find Out Where You Can Use the Card
Before you sign up for the store card, find out whether it’s one that can be accepted anywhere (like a regular credit card) or if it’s one that can only be accepted at that store (plus any affiliated retailers).
If you’re signing up or the card for the discount and with the idea that it can be your primary credit card, then you’ll want to be 100% sure that this is even possible.
The easiest way to find out the answer to this question is to ask the store associate offering you the credit card.
Using Retail Credit Cards to Build Credit
Besides promotional financing and discounts, store credit cards can be useful for someone trying to build or rebuild their credit.
Since they tend to come with lower credit limits and higher interest rates than average credit cards, many retail credit card issuers are more lenient with their acceptance policies.
In other words, if your credit score is lower than you’d like it to be, you can potentially use a retail credit card to work on improving it.
But just getting approved isn’t enough to improve your credit score. You’ll also need to do the following:
- Keep your balance as low as possible, but definitely don’t go above 30% of your total credit limit
- Make all your payments on time, every time
These are only two of the many factors that make up your credit score, but they together they make up more than 60% of your score.
That means using your card but keeping the balance low and maintaining a habit of on-time payments can greatly help you increase your credit score.
There is some dispute regarding whether store cards can help or harm your credit score.
If you’re someone with a low credit score, retail store card issuers tend to be lenient when it comes to the credit profile of who they’ll approve to take out a card, which means these cards may help you establish a higher credit score.
The Best Way to Utilize A Store Credit Card
The short answer to the best way to utilize a store credit card is to get the discounts and don’t go into debt. Here’s the long answer?
Don’t go into debt.
Okay that’s still a short answer. Here’s the deal, obtaining discounts on retail credit cards or any other credit card does absolutely no good if you end up going into debt on the card.
It only takes one month of an interest charge to destroy the discount you received - and when you start adding more months on, you’ll start to find that you’ve paid much more for that initial purchase than you ever would have agreed to at the counter.
So how can you stay out of debt with a retail credit card? There are a few ways. If you’re obtaining a card for the promotional interest rate, make a plan for how you can pay the balance off before the promotional rate expires.
This is easy if the promotional interest rate is 0%, which is often the case.
All you have to do is divide the total purchase amount by the amount of months until the rate goes up. The answer to that question is the amount you should pay each month until the card is paid off.
If you obtained the store card for a discount, then the easiest way to stay out of debt is to pay the card off before you leave the building.
Many retailers take payments on their credit cards at the counter, much like they take payments for your purchase.
You would have to pay with cash, check, or debit card, but that’s the only caveat.
Think about it this way: if you were going up to the counter to make a purchase without a credit card and are now considering it only for the discount, then you already have enough money for the purchase.
Pay that credit card off at the counter every time you use it and you won’t have to worry about accruing interest.
So, Is a Store Card the Right Choice for You?
Only you can answer this question. But if you keep these considerations in mind when you’re at the counter getting ready to check out, then you should be able to make the right decision for you.
Ultimately, it comes down to this: will the discount they’re offering be useful more than just this one time?
Are there other credit cards that might actually be better for you? And can you handle making purchases with a credit card in a way that keeps you from going into debt?
If you can confidently answer these questions, then you’ll know just what to do.