You’re at the checkout at your favorite store — Target, Walmart or Macy’s perhaps– and the store clerk offers you 20-percent savings if you open up a card today. And then on future purchases you’ll always save 10%! Tempting, right? Sure. However there are a few things you should consider before saying “sign me up!”
High fees: We all know carrying a balance on a credit card means you’ll pay interest. But did you know that the interest rate on a store card is higher than a non-store credit card? Non-store credit cards carry around a 13% interest rate (if you have good credit) whereas a store card will be much higher. The Target card I just was offered came with a 23% interest rate! If you get caught carrying a balance on your credit card, your wallet is gonna take a hit. Only use a store card if you’re able to pay it off in full each month.
Credit check: They don’t just give you the credit card without checking into your history, specifically your credit history. That credit check will cost you — your credit score will take a hit due to an inquiry on your report. If you’re hoping to get a car loan or some other loan in the near future that requires a credit check, be careful with those inquiries.
Annual fees: Non-store and store cards alike may have annual fees. Whatever kind of credit card you’re getting, make sure you understand whether an annual fee may be charged.
Pressure: Maybe you’ve worked in retail, or maybe you know someone who has worked in retail — ask them about their quota. Many times clerks are under tremendous pressure to sell you the cards and are required by management to meet a certain quota. Do what’s in your best interest, not what’s in thiers.
Promotions, promotions, promotions: Let’s say you decide to sign up. Just because the card is in your wallet, doesn’t mean you’ve got extra cash. Stores will encourage you to spend on their card by bombarding you with promotional offers like sales and discounts that even for the most disciplined among us are hard to avoid. When those promotional offers come your way, alarm bells should go off in your head. Stick to your budget (you’ve got one of those right?!) and don’t give in to those ‘good deals.’
But I’ve heard they’re a good way to build credit? Store cards can be a simple and easy way to increase a low credit score or establish credit, but have an honest conversation with yourself before signing up. If you tend to easily be persuaded by sales and good deals (like I am!) this may end up putting you into debt instead of improving your credit score.
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