Think Twice Before Signing Up for Store Cards

The following is a guest post from Maya. 

If you’ve ever stepped foot in a big box, retail, or department store, there is a good chance you’ve been asked to sign up for the store’s credit card. Usually the clerk will ask whether or not you would like to open a store card, and then will try to further persuade you by stating that you will receive 10 to 15 percent off today’s purchase simply by signing up.

While this may seem like a good idea, especially if you shop at that local store often, a store card is usually one of the worst types of credit lines you can open up. Sure, they help your credit a bit, but they aren’t as beneficial as other types of credit cards due to the following reasons:

You’ll Be Likely to Spend More

Credit card debt is one of the biggest problems facing the common American these days, and the primary reason is overspending. Retail and department stores want you to sign up for their store accounts for two reasons:

1. Money made off interest
2. You’ll be more likely to spend more at that particular store.

By offering small perks, like 5 percent every time you use the card at the store, you are enticed to actually spend more thinking that it will add to greater savings when, in fact, you wouldn’t have spent that amount of money in the first place.

The Interest Will Be High

While a store card may not seem as threatening as a traditional credit card in terms of fees and interest rates, they can be just as financially lethal. In fact, most store cards have interest rates that are just as high, if not higher, than traditional cards.

So before you are prompted to put more on that card to save 15 percent now, consider how much you will be paying back with an interest rate of 22 percent. You’ll start to see just how quickly your savings really doesn’t add up.

The Perks Aren’t Great

With store cards you don’t get cash back or travel miles or discounts off hotels, you simply get store coupons or $5 off your next purchase – ‘perks’ that will only prompt you to spend more at the store as there is nothing else you can do with them.

If you are interested in getting a credit card, choose one that will actually provide you with benefits that can be used in multiple ways. Today, you can even sign up for cash back rewards programs and programs that will help you put money into your kid’s college fund.

The only exceptions to these rules are those cards offered by stores that are backed by major credit companies such as Visa or MasterCard. If you shop consistently at a store, and they offer a Visa backed card that will give you points for all of your purchases, but even more for those made at that store, that store’s particular card may be a good option. However, if you don’t see the Visa or MasterCard logo somewhere on the card, avoid it by all means.

Store cards are designed only to be used in a specific store, and therefore, aren’t the multi-faceted tools that can actually be beneficial to use on occasion. So the next time you are offered a store card by a clerk, politely decline. Your wallet and credit will thank you later, and you can always save 20 percent off your day’s purchase by clipping the Sunday coupons.

Maya Szydlowski is a community blogger for Veterans United Home Loans, a military resource provider and the nation’s leading dedicated VA lender.

Photo credit: Patricksmercy