Pros and cons of the store card

Posted by Rebecca Stains in Personal Finance on 17 December 2014 - Rebecca worked as a Credit Analyst at checkmyfile until 2015

We have all been at the register, ready to pay, when the sales clerk asks if you are interested in one of their own store credit cards. If you say no you can expect to hear a long sales pitch but sign up and you get a big discount on the purchase you are about to make. Tempting.

There is usually an instant discount, often as much as 20% off, so it’s easy to see why thousands of us spontaneously sign up. Hundreds of pounds can be saved instantly on your shop by doing so. But it’s easy to say ‘yes’ without thinking about the possible consequences, especially with regards to making repayments and the effect on your credit worthiness.

“You should never feel pressured to add a new credit card to your wallet,” says Gerri Detweiler of Credit.com. “You need to think about this before you go to the store, rather than when you’re right there at the register. That way you can make a smart decision”.

Applying for that store credit card may be a money-saving move or a bad decision, based on your current financial situation and how you pay your bills. It is important that you understand all of the terms and conditions, and the potential problems you may experience later on. If you carry over a balance on the new card for even a couple of months, the interest you pay will be greater than the savings you initially make.

Store cards often provide customers with special perks such as discount and rewards for your loyalty. But they typically have high interest rates and low credit limits, usually sitting at around the 30% APR mark, which is the same as a credit building credit card. Maybe the question to ask yourself is whether you would apply for a high interest credit factility in any other circumstances?

“If you’re disciplined about paying off your credit card balance in full every month and you’re not planning on taking out a car loan or mortgage in the next few months – where you really have to watch your credit score – and you can save a lot of money, then go for it,” said Greg McBride, senior financial analyst at Bankrate.com.

A retail credit card can sometimes make sense, but only if you have the discipline to use it correctly. A store card can be a good way to establish credit, since retailers tend to be more lenient when it comes to approving applications. Someone with a low credit score has a better chance of getting a store card as long as you keep the balance low and pay off the bill each month, potentially making your way to a better credit history. If you do not think it’s right for you just say ‘no’ and be firm about it.

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