Beware of Store Credit Cards

Store Credit Cards

Every time I shop at a certain store, I’m asked, upon checkout, if I’d like to apply for the store’s credit card and “save 20% off today’s purchase.”

Each time, my answer is no.

Sometimes it’s hard to say no, since the question is phrased in such a way that I feel like I am saying no to saving 20%, rather than saying no to a credit card.

However, I stand fast, knowing the impact a store credit card can have on my credit score and not wanting to have an extra reason to spend money.

Store Credit Cards Can Get You Deeper Into Debt

For people who have debt right now or who have recently gotten out of debt, getting a store credit card is risky and may be a recipe for disaster. Why? Because it makes it all too easy to fall back (or deeper) into debt.

These cards not only have higher interest rates than most other cards (up to 25% or 30%) but they offer a unique challenge to those of us striving to be frugal: they provide the power of suggestion.

Remember, we’re talking about the type of retail credit cards that are offered at department stores like Macy’s, Nordstrom, Old Navy, JC Penney, etc., and at big box stores like Kohl’s, Best Buy, Sears, Home Depot, etc. If you get the credit card of one of these retailers it’s going to make it that much more tempting to come back to the store soon, and once you’re back it will be that much more tempting to buy a lot of items because, after all, you can put it on the card!

In fact, this is the reason the stores love to get you signed up for these cards – it ensures they’ve got a loyal customer who will probably spend more money than they had planned each time they visit the store. So don’t fall for it! If you have (or have had) a spending problem in the past, steer clear of these retail store cards!

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Store Credit Cards Can Affect Your Credit Score

Equally important to the debt aspect of these cards is the impact they can have on your credit score. When you apply for a store credit card, your credit file is pulled. This counts as a hard inquiry that will lower your credit score for the first 12 months and will remain on your credit report for up to 24 months.

Why does a credit pull like this affect your credit score? Good question. We’re not completely sure, but it has to do with the formula credit bureaus use to calculate your credit-worthiness.

Anyway, the more important question is: how much does the credit pull hurt your score? Unfortunately, it’s hard to say exactly how much a hard inquiry will affect your score (the algorithms used to figure your score are proprietary), but you can be sure that it will affect your score at least a little bit.

It’s also worth pointing out that if you have a number of inquiries on your credit report in a short period of time, your credit score is impacted more. So, if you go from store to store while you are getting a lot of shopping done, applying for store credit cards to save anywhere from 5% to 20% on your purchases, the large number of inquiries could significantly bring down your credit score.

Do Store Credit Cards Ever Make Sense?

For most people – especially those trying to avoid debt and/or overspending – the store credit cards are more trouble than they’re worth. It just doesn’t make sense to put that kind of temptation in your wallet and walk around with it every day.

However, if you are not troubled by the temptation factor, then in some cases it might make sense to get one – especially if you can save money on a purchase you were planning to make anyway, particularly if it’s a big purchase like a new refrigerator. If you do ever decide to get one, just remember that all the same rules of savvy credit card use apply to store cards: only spend what you had planned, and pay off the balance at the end of each month.

And if you’re already toting a store card with a balance on it, then it’s time to sign up for ReadyForZero so you can start getting that sucker paid off!

What do you think? Have you ever signed up for a store credit card? If so, how did it work for you?

Image credit: stevendepolo

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  • John S @ Frugal Rules

    The only one we’ve had was a Kohl’s card as we shop there quite a bit and get deals by using it. Though, we only spend what we have budgeted anyway. One other thing to mention is that many store cards will report your limit as whatever your balance is at the time. Which could impact your score making it look like you’re using more of your available credit.

    • That’s a good point about the store cards reporting your limit as equal to your balance – could potentially be a problem for people who are trying to improve their credit. I could definitely see a Kohl’s card being useful – glad you guys have figured out how to use it in a way that saves you money without leading to more purchases!

  • Store credit cards can be dangerous. We got one from Lowe’s one time because we wanted to save 20% on our fencing purchase. We used the card for the purchase and then paid it off. We have not used it since.

    • Yes, they can wind up being an invitation to spend more! That’s cool you were able to use the Lowe’s card to save 20% on a one-off purchase and then stop using it entirely.

  • Mike@WeOnlyDoThisOnce

    It seems that very few stores are frequented enough to warrant a store credit card that will not end up with you spending more than you need to. I’d much rather use cards for frequent flyer miles, etc.

    • I think you’re right, Mike. There are only a few scenarios where I’d get a store credit card and most of those involve making some kind of big premeditated purchase where it would help to get the 15% or 20% deal.

  • We’ve been happy with the Target Red Card. It gives 5% off purchases and gives free shipping on any purchase. However, we are highly disciplined credit card rewards maximizers who would never consider carrying a balance.

  • DavidvsGiant

    Our in store Macy’s experience. For many, many years, we only used one credit card (two cards, one joint account). Bills came, and we’ve always paid them before they were due. We can honestly say, we have never paid a bill late, nor paid interest on a credit card in 25 years. I signed up for a Macy’s credit card in store to get 15% off last summer. The first bill I saw from Macy’s had a $25 late fee. That bill stated that the August payment had not been made. I don’t know why, but we never received it. So, I called Macy’s, told them the story and the person said…. “well I’m showing we mailed it”. To which my response was obviously; we didn’t get it…. …to which she responded, “we get that a lot”. To which I responded; ok, but this time it’s true; check our payment history with any credit scoring company (my wife and I both have scores over 800). The result of the conversation was that I immediately paid the balance over the phone with her, including the $25 late fee and closed the account. She kept saying, hey, maybe we can do something else; to which I responded, it’s a little late for that. Anyway, as a final slap of “customer service”, today I got another bill from Macy’s for $2.00. This was a fee for closing the account. Hence the reason I’ll post this on as many blogs as I can as a personal hobby.

    • Wow, thanks for posting this here as a public service! Definitely good information for our readers to know.