Retail Store Credit Cards

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Department Store Credit Cards

During holiday shopping you will frequently be asked by the store clerk “Would you like to apply for a store credit card and save 20 percent on your purchase?” Should you do it? I found a really good article in our local paper that discusses the pros and cons of retail store credit cards.

Risks - One factor to consider is are you likely to carry a balance on your department store credit card. Store credit cards frequently come with high interest rates, so any discount you get up front could quickly be erased. For instance the J.C. Penney card has an interest rate of 23.99 percent.  Another risk is that if you don’t shop at the store often you will be slower to recognize identity theft. Even though you are not liable for the charges sorting out the mess will be time consuming.

Credit score impact – Applications for new credit, whether it’s a store or bank card, can lower your score.  Especially if you open several cards over just a few months.  Given this tight credit environment, you might also be tempted to open a store card as a way to boost your credit line (which is another factor in your credit score).  But store cards typiclly come with lower credit lines than bank cards. The dip your score initially takes will probably outweigh any positive impact, too.  Generally a store card will not affect your score as badly as a bank card partly because store cards can only be used in a limited way.

Rewards - The advantages you receive with department store credit cards sound the sames as reward cards, but there is a difference. With traditional cash-back rewards cards, you get rebates on purchases you make anyway. With store cards, the deals are intended to make you spend more.  So if these offers will make you over spend best not to have the temptation.

Summary – Store cards can work to your advantage if you are a regular shopper and capitalize on the year-round discounts. Your store might also offer valuable perks such as free shipping. If you do decide to open an account at least wait until you make a large purchase to get the maximum advantage of the initial discount.

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