Have you started your holiday shopping yet? I do most of mine online to avoid crowds and higher prices. But if you’ll be doing your shopping in brick-and-mortar stores this season, I have one warning: beware the department store credit card!
We’ve all been in this situation before. You’re at a department store at the mall and you’re waiting in line with a couple hundred dollars worth of gifts, dreading the total that will pop up on the register. The cashier rings you up, and sure enough, the total says $217.25. Ouch. But wait! “Would you like to save 20 percent today by opening up our store credit card?”
Hmm. Twenty percent of $217? That’s like…over $40! That’s practically like getting one of those presents for free! And you don’t even have to pay for it all now. This sounds like a great idea!
STOP RIGHT THERE! The card may have the illusion of saving you money since it took $43.45 off your bill, but chances are, it’s actually going to cost you a lot more than that. Most store cards don’t have any introductory or grace period before interest is charged, so more than likely, that $173.55 you just paid is already accumulating interest. There goes part of your discount.
It’s also accumulating interest at a higher rate than most credit cards, on average about 24%. When the bill comes, say you only decide to pay for part of it and you’ll make payments on the balance. Bad idea. Within a few short months, you’ve lost your 20% discount and will actually owe more than you would have originally spent without the credit card.
But say you just decided to make payments anyway. Stores usually set the minimum payments low, hoping people will take as long as possible to pay off their balance, thus earning more money for the store.
It’s so easy to sign up for store cards, so some people practically collect them. But this can do damage to your credit score. Having so many inquiries on your credit report can bring your score down. So can opening several accounts within a short period of time, because it lowers the average age of each account.
I won’t argue that ALL store credit cards are bad for everyone. It probably depends how you treat credit cards in general. If you pay them off in full every month, a store card won’t hurt you nearly as much. I have one store card that I use frequently, and each month I’m sent a 20% or 30% off coupon, good toward everything I buy in the store. If I don’t need anything from the store, I throw the coupons away, because they’re just trying to entice me to come back to spend money. But if I was already planning a trip to the store, I take advantage of those coupons, use my charge card, and pay the balance off immediately. But store cards are extremely dangerous for anyone who can’t do that.
So next time you’re at the checkout register and the cashier is pushing you to get that credit card, just say no. They may be pushy, especially around the holidays because often companies will reward the employee who gets the most people to open a credit account – but just say no to their badgering, and pay with cash or a regular rewards credit card that you’ll pay off immediately.