credit: stevendepolo
As much as I love getting a bargain, there is one discount-grabbing method that I refuse to stoop to: signing up for a store credit card. I know that many times you can get 10% or even 20% off your purchase by signing up for the card, but you should know that the discount comes at a price.
For one thing, many people who are enamored with their “savings” turn around and buy a bunch of extra stuff. After all, they reason, they’re getting a discount, so they should take advantage of it. Stores capitalize on this mentality, too, by offering special discounts for users of their cards throughout the year. This discount ensures that you come back to buy more extra stuff again and again.
Another problem with store credit cards are the finance charges associated with them. Traditionally, store credit cards charge much higher interest rates than general purpose cards. Many of the store’s credit cards have interest rates higher than 20%! If you’re going to carry a credit card balance, you would be much better off to use a Visa or Mastercard credit card that offers a low interest rate.
Finally, store credit cards can become problematic for folks who plan to purchase a home or car in the near future. Anytime you open a new line of credit, your credit score drops ten or fifteen points. Now, imagine that you opened three store credit cards while doing your Christmas shopping last year. Wow! Your credit score just dropped thirty to forty-five points. That drop could cost you big bucks when you don’t qualify for the best available interest rate for your next home mortgage.
When you really look at the downside to store credit cards, I think you’ll see why you should never apply for a store credit card simply for the discount. Although that discount might save you a few dollars in the short run, your budget could suffer in the long run. Instead of wasting your time and effort to fill out those applications, you’d be better off investing a little time in comparison shopping. You’ll get a great deal that doesn’t wreak havoc on your future spending.
{ 4 comments… read them below or add one }
I have signed up a number of times, but usually only when it is a store at which I rarely shop. I haven’t done it in the last year because I was trying to build my credit score and didn’t want to ding it.
It is very tempting to get those deals, but then you think about all the dings to your credit score and the hassle of having a million cards …it just isn’t worth it in most cases.
For the most part, I have never sgined up for a store card.
I think I did once to save 10% on a washer and dryer, and I did it once for a set of bedroom furniture.
I think its OK in those instances, but you have to be disiciplined enough to not buy anything extra, and pretty much cancel the card after your purchase is paid off.
For me the biggest downside would come in the form of those coupons that get sent to you when you have a store card! I know I’d be tempted to spend more, so I just say no and don’t get them in the first place. I figure I save more by not buying things than I would with the discounts.