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?
Do remember to follow me on Twitter and/or Facebook, and subscribe to my RSS feed, coz’ I will help.
Julie @ The Family CEO says
Store credit cards are the worst! Good for you for avoiding them.
I believe most of them are.only a few exceptions
Denise @ The Single Saver says
Okay, I admit it… I have signed up for store cards before. BUT… I only do it if it is for a large purchase (like furniture) and the “deal” is worth it. And then I immediately pay it in full and cancel the card. I very rarely do this so I am not too concerned with it effecting my credit.
As I said, only one good way to make this work for you, and that is to pay off immediately in full. If you dont need a mortgage or car in next one year, you can cancel this card safely
I have three store cards, I have is a nordstrom card, a barnes and noble mastercard and an amazon visa. The only problem I have with it is it does not report a limit to the credit bureaus. It has a lower interest rate then most credit cards (variable but right now 8.99%), it is also a visa and the limit is high. The barnes and noble card does have a higher interest rate and now limit but is still a mastercard and does get reported to the bureaus. It gives me 5% off at b&n. The amazon visa on the other hand, other than still being a visa is exactly what you described. High rate, low limit, hard to pay off. The website is impossible to pay through.
I think store credit cards can be useful but are not always and are not for everyone.
Two things, 1) three store cards are exactly what you should avoid, 2) Why do you need B&N, ok, I think you are one of those who still prefer paper books, but in next few years paper books will be rarity.
You can do yourself a huge favor by consolidating store cards
I completely agree with you. Even if I have signed up for the deal and never used it again, but I don’t do that anymore.
so you are only keeping the card? Keeping the card won’t do a good or bad to your score. if you purchase a token amount every month and pay in full before due date score can go up
Jeff @ Sustainable life blog says
I have always manged to stay away from store cards – they seem like they are giving you a small benefit up front for large costs down the road. However, if I had a major home improvement project to do or something where I’d be going to the store quite a bit, I may look into it for the discount.
but pay in full every month, don’t pay a single penny as interest
I’ve definitely been suckered into this before, but then I always just end up with an extra card in my wallet that I never use, that I’m afraid to cancel because of the effect it’ll have on my credit score. Geez!
I will say the same thing to you what I said to Denise. If you don’t need a mortgage or a car in next 6 months to 12 months you are safe to cancel. The drop in credit score for the cancellation will be recovered in this time period.
Hunter @ Financially Consumed says
I don’t think anyone needs one of these. I’m with you. I think they are great promotional tools for retailers and help to build brand loyalty. But that doesn’t help me. I believe the biggest programs are also real credit traps, like Sears.
You’re on my team. These are nothing but credit traps
Eric J. Nisall says
I have to disagree to a certain degree. If you are planning a large purchase like a television or home appliances, some store cards are absolutely a great help. Even if you have the cash available, you can go to a store like sears or Best Buy that offer 12, 24, even 36 months of no interest financing, and keep your money working for you rather than giving it away. At least in this way, you get the double benefit of getting what you want and still have the money working for your benefit.
As far as regular store cards, I don’t use them personally, but that’s just me. If someone is responsible and can use the credit as the financial tool it can be , then I’m all for them getting their discounts when they can.
really? I didn’t know they hurt your credit score that much. We only have a Macy card and don’t really use it that much.
the hurt was done for you. If you do not apply for another one you are good.
Any credit card should be opened sparingly – store card or otherwise. All cards are same, major credit cards lure people with bonuses, store cards with discounts. With that said, I just finished writing a post where I recommended people get a store card – a recent immigrant. Store cards are much easier to get than major credit cards and has the same value as any bank CC(most of them, like Macy’s Visa card). If you pay in full, it will be a great way to build credit history.
I would also suggest a secured credit card for recent immigrants. It is valuable asset to build credit history, but if you, like most of the Americans, don’t pay off in full every month, you are building nothing but a poor credit history.
Andrea @SoOverDebt says
I had a TON of store cards when I was in college. Best Buy, Target, Maurice’s, Old Navy, Amazon, JCPenney, Speigel, Ann Taylor, and Lowe’s are the ones I remember off the top of my head. Every one of them had a measly credit limit, anywhere from $200 to $1000, and interest rates of 20-30%. I would charge them up at the end of each semester, pay minimums, then pay them off with my extra student loan money when the next semester started. SO STUPID.
I refuse to apply for store cards now, no matter how great the discount is. I know some people are disciplined enough to use the card, get the discount, and pay off the balance immediately, but I know myself. I would think, “Oh, I’ll schedule the payment tomorrow,” then it would be “I’ll do it after I get paid,” then “I’ll wait until tax time.” I would end up right back in major debt. Store cards are a major trigger and no-no for me!
Eric J. Nisall says
I totally respect the fact that you point the finger at yourself for not wanting to take another card, rather than place the blame on the stores. Too many people blame credit for their problems rather than being honest like you and admitting that they aren’t the most responsible user of credit.
Andrea I think you should write about your college life spending habit in your blog to educate young students about what not to do.
Khaleef @ Fat Guy Skinny Wallet says
I remember my first store card – I think it was either Sears or Macy’s. It had a $100 limit and about 20% interest!
What you did with that, still carrying it or cancelled it ?
Khaleef @ Fat Guy Skinny Wallet says
This was about 15 years ago, so I don’t have it anymore. I think I cancelled it once I got a few credit cards.
Thank you for the excellent writeup. Americans are consumerist and think short term. I do time to time inclined towards instant discount rather than thinking long term
Excellent points! This is exactly the type of article that needs to be shared around the web. We loose so much money on credit card interest, store cards are worse. Thanks for pointing it out
John Moe says
I have a walmart card and its good for nothing. I never know what impact it did to my credit
how long you have it? since you have it already use it and pay off immediately
Mom of two says
Great suggestion! I have Borders but they are closing. I am not trying to have a new card now. Do you know if my credit is affected if I close the account now?
Super Frugalette says
I had a Brooks Brother’s card once…for the reason you mentioned. I was making a $500 purchase. I soon canceled it. I did opt for the Target debit card. 5% off everything.
WONDERFUL Post.thanks for share..
Hey Teri, thanks for your comment
Meghann Booty says
Sure do disagree with your comments, I don’t believe all the facts are clear.
I am 18 years old and a 2nd year college student. I have had credit cards since december of 2007 so its been about 10 months. I hold 2 credit cards at 2 banks each of which i have a checkings and savings account. Id like to apply for a personal loan of about 7500-10,000 dollars. Ive currently had a car for 6 mnoths that im making payments on with a 17.6% interest rate. This is way too high id like to tkae out a loan to payoff the remaining 6,800 i owe on and the remaining 4,000 for help with school costs and things i need. The reason i dont jsut apply for a auto loan is because im sure they would give me more than the remainder of the balance on the car. Am i possibly qualified. As far as my credit goes i charge on my cards very often, basically everything i buy so i can build my credit. I will pay 90% of the balance on both cards every month and have been doing so for 9 months, my name is also a secondary buyer on my car loan for 6 months which probably helps out my establishment process a bit. Would i be able to qualify for a 10,000 dollar personal loan with no co signer in this current economy. I gross about 1100 a month