Department Store Credit Cards and Payments
Store Credit Cards
It happens almost every time you shop particularly if you’re making a large purchase. I am going to call these store credit cards as most people have lost track of the difference between a credit card and a charge card.
The sales clerk starts in on the “Save 15% if You Sign Up Today!” and it sounds awfully tempting. After all, 15% will certainly help the bottom line. Especially when you are spending 1500.00 on a new TV that you can barely afford. That’s a huge savings.
But store credit cards can be dangerous. Though they certainly have their place, it’s important to not make your decision about a store credit card on the spur of the moment. Here is some of the fine print that the sales clerk doesn’t tell you:
The interest rates are through the roof. Regular credit cards have an interest rate of around 14%. But store credit cards average 25%. This makes no difference whatsoever if you’re going to pay off your balance each month, but of course the store is counting on the fact that most people don’t do that. And if you’re paying an interest rate of 25%, your 15% savings on that initial purchase really doesn’t help at all.
Low credit limits can equal a low credit score. Most store cards have relatively low credit limits—generally about $1,000. That means that having one (or several) could negatively impact your credit score. Here’s why: your credit score is calculated based on the amount of available credit you have used. The rule of thumb is to have your statement balance be no more than 30% of your limit. With a $1,000 limit, it might only take one shopping trip to go over that 30% mark, and carrying that balance will hurt your credit.
With all that, it can make you wonder if it’s ever a good idea to sign up for a store credit card. Of course, it is possible to use store credit cards responsibly. And it can even help someone who is first establishing (or re-establishing) his credit. Because store cards tend to have looser credit requirements, people who might have trouble qualifying for a traditional card still have a way of building their credit history.
The important thing to remember with store credit cards is that the company wants you to make a split second decision without taking the time to think about it. Then they want you to keep coming in with the card to spend more and more. You are in charge of your finances, and there is no time limit on making good money decisions.
Be a smart consumer think first, make a calculated decision, don’t just jump, but if you were going to pay cash, what the hey, get the card and pay it off right away with the cash.