Everyone loves a bargain and when there is one on offer, it is often hard to resist. Many retail outlets offer their customers up to a 20% discount on goods purchased that day if they sign up for a store credit card. Whilst this may seem like a harmless idea at the time, temptation may lead you into further debt. It is important not to act impulsively but instead do some research on the terms and conditions of the store credit card before signing up.
Your store credit card may offer you many perks such as continuous discount on certain goods but it is important to also realize that these cards often charge much higher interest rates when it comes to paying off you debt. If you are someone who needs to establish a credit history or improve your credit score, then by all means a store credit card can help you along the way as long as you exercise moderation. However if you already have many other store credit cards, or if you run up the balance on this one, it could severely hurt your credit score. Let’s look at some of the pros and cons a store credit card brings before we decide to get one.
Credit Cards Vs. Store Credit Cards
If you are looking to establish a credit history or improve your credit rating it may be more beneficial for you to get a bank or national credit card as opposed to a store-specific credit card. Your big retail outlets accept both and whilst they often offer you those very tempting discounts if you opt for a store credit card, it is important to note that the store will never lose out and that over time, should you default and with the high interest rates they charge, you will end up paying more even with the discounts you were given.
The other disadvantage of having a store credit card is that it is specific to that store alone. You cannot use it elsewhere and that often leads to you obtaining multiple store credit cards for all your favorite shops. In this case it would make more sense to get a national credit card which you can use anywhere and pay it off at a much lower interest rate.
Do Not Get A Store Credit Card If…
If you don’t have the discipline to pay off your store credit card as soon as possible or keep the statement balance minimal, and if you shop impulsively then signing up for a store credit card may not be a very good idea.
Store credit cards usually offer very low credit limits that can range anywhere from $100 to max, a $1000. This means that to use it responsibly would entail not exceeding the credit limit and to not use more than 50% of the available balance on any one card in order to avoid reducing your credit score. People need to realize that if they intend spending more, then maybe a national credit card may be a better option as they generally offer you a higher credit limit to begin with at a much lower interest rate. This way you can avoid hurting your credit score in a more manageable way.
When Store Credit Cards Work In Your Favor
You can make a store credit card work in your favor if you intend paying off the balances so as not to incur any interest. It can be really handy in building or improving your credit score. This is because retailers are generally more relaxed in terms of a consumers credit profile and they make up for it by charging much higher interest rates should a consumer then carry a balance.
So in order to get the most out of it, and you can, it is advisable to pay off the card as soon as possible or keep the balance to an absolute minimum. Then you may actually gain a lot form having a store credit card in terms of the discounts or rewards they retailer offers you. It is vitally important to keep your debt-to-credit ratio as low as possible in order to obtain a higher credit rating.
If you love shopping at one particular store for almost everything, be it your clothing or gadgets, and you shop their frequently, a store credit card will work for you, provided you keep the balance minimal because many stores offer reward systems in which you can earn points which may in fact help you save money.
A store credit card can work in your favor if you:
- You are responsible and smart about paying it off
- If you intend purchasing a high ticket item, the 20% discount when you sign up is a good deal (provided you pay if off as soon as possible)
- If you are looking to improve or build your credit score
- If you shop often at one store in particular
It is advised to research thoroughly the terms and conditions of the store credit card you would like to apply for to see if you can handle the payments and control your purchasing. Responsible shopping is key to managing a store credit card!