Yes or No: The Store Credit Card Debate

Yes or No: The Store Credit Card Debate
You go to check out at a big box store or department store, and the clerk tells you that you can save 10 percent (or sometimes more) off today’s purchase if you apply for a store credit card. As you are doing the math in your head, she rattles off a list of other benefits that will likely save you money. But you wonder if getting a store credit card is a solid financial move or if it could negatively impact your credit score.

Here are 5 questions to help you determine if getting a store credit card is the right move:

Are you building or rebuilding your credit history?

Store cards can be easier for someone with a low credit score or a short credit history to obtain. This often makes store cards a solid choice for people establishing credit or repairing a low credit score. However, if your goal is to improve your credit score, you must pay your bills on time and keep the balance low.

How many other recent inquiries and new accounts have you recently opened?

For example, if you have recently bought a car, opened a different store card, and had a credit inquiry while applying for an apartment lease, you may want to consider passing on a new card at this time. Hard credit inquires, which include applications for new credit or loans, accepted credit card offers, and credit limit requests, can lower your credit score. 

Are you planning on paying off the card monthly or possibly running a balance?

Hopefully, the answer is pay it off every month. But if there is a chance you will be carrying a balance, you need to carefully think about the impact on your debt to available credit ratio. If your credit utilization ratio is over 30 percent, your credit score could be in danger and creditors may turn down your application.

What is the APR?

It’s easy to think that the interest rate is low because of an introductory offer of a low rate, but be sure to read the fine print to find out the actual APR. The 2016 Retail Credit Card Survey found that close to half of store credit cards carry an APR of 25 percent or higher. Even if you plan on paying it off each month, it’s important to know the rate since unexpected expenses may come up or your financial situation may change.
Will you save money with the card benefits?

If cardholders get free shipping on all online purchase and you order clothes from the store’s website several times a month, then getting the card will likely save you considerable money. Or if you are making a single large purchase, such as a washing machine, and the card offers a high discount such as 30 percent on a cardholder’s first purchase, then the cost savings may be worth opening a new card. According to the 2016 Retail Credit Card Survey, 26 percent of store credit cards reward you for spending more, and 50 percent offer signup rewards and purchase discounts. Since store credit cards often come with a host of benefits, you’ll need to weigh the pros and cons carefully before deciding to take the leap.

By carefully considering the impact to your credit as well as the financial benefits of opening the account, you can feel confident that you are making the right decision each time you add a new credit card to your wallet