One of the life ruining financial decisions you could ever make is applying for store credit card. I know some people who fell for it and ended up giving out financial freedom.
You must have heard credit cards are dangerous tools to play with (Not Always). If banks credit cards are pistols, store cards are assault rifles, the kind Arnold Schwarzenegger used in Terminator.
How often you hear from the clerk at the counter offering you 10% off, 20% off or even 30% off just by applying for store card? Many of us do fall for this, actually $20 instant save on $100 shopping is too good to resist.
Why you should never apply for store credit cards
1. They lower your credit score – When opened within a short interval multiple store cards drastically reduce credit score. Personal stories on net reveals 30 -70 credit points loss. his loss may even result in paying one percentage point more interest rate on every loan you take.
2. They have unusually high APR – Store cards generally charge up to 20% APR, ridiculously higher than the cards offer by our banks. If you don’t pay in full every month, you will end up paying a lot of money on interest, offsetting the discounts you got to open the account.
3. They have lowest credit limit – Compared to cards that are issued by your bank, these store cards have a miniscule credit limit, not suitable for your big purchases. Primary business for a store is to sell their product, not to lend you money, hence they reduce the risk by limiting credit limit to a manageable value should you decide against paying off the balance.
4. They don’t work else where – Except a few exceptions they are not accepted else where, even if they do they don’t give back rewards points or cash backs. This limits your ability to earn points which you could have earned by using bank credit cards. (Also true for AMEX, Discover and Capital one as well, they have great rewards, often more than bank cards).
5. They encourage more spending – Having a JC Penny card will encourage you to visit the store every week. Do you really need a pair of shoes or pair of new clothes every week? Be sure to receive tons of communication from store the moment they have your email and mailing address with them. Few offers will be hard to resist, resulting in impulse buying.
6. Pay off period is lesser – Not all but few store cards have very small window for you to pay off before interest charge takes effect, compared to regular credit cards. If you wait for the paycheck before paying off, you will be in trouble.
There is one positive point of having store card
|If you use it the way I am telling you, this one positive can offset all negatives about store credit card
Analyze your spending pattern for last one year, identify where you shop most, if the store offer store card, apply for one, or look for the place you spent second most and so on. Apply for only one card, remember, only one.Always shop with that card at the store and enjoy the price off. Upon returning home immediately pay the card from your bank and write a check and drop it in mail box.
One card doesn’t hurt your credit score; the drop in score for one card can be offset in 4-6 months. After that continued usage will add points to your score. you will not pay any interest as you are pay off the cards before that due date and you enjoy discount the store offers.
Wasn’t this useful?
Still Store Credit card is bad for your money
Stores are not regulated like tobacco companies, other wise every credit card offer from these stores should have had a warning “improper use of credit card can ruin your life“.
It takes years of effort to build credit score, don’t ruin it by opening a few store cards. From next time, if a store clerk offers you 30% off, politely say ‘No’. That 30% save today will erase thousands of dollars from your net worth throughout your life time.
You can immediately start consolidating your store cards or start cancelling them out, even though it will further hurt your score if you do so, but within a year or so this drop will be compensated leaving room to increase further with each passing month.
Example of few store cards are Wal-Mart, JC Penny, Dillard’s, OfficeMax, Staples, Tiffany, Target, Sears, Macy’s, Old Navy, Banana Republic, GAP etc. I do like these stores, but not their cards!
Readers, would you apply for a store card after reading this article? If you happen to have one will you consider selling it if it’s costing you lot of money in interest?