Should You Get a Store Credit Card?

(This is a guest post by Jim Corbett.)

Sometimes it seems that, wherever you go, someone’s trying to issue you a credit card. This is especially true of discount and department stores, which tempt potential cardholders with promises of hefty up-front savings.

But what is the long-term value of these cards? How can you tell if they’re right for you?

Store credit cards have pros and cons. Experts agree that you should avoid them if you’re likely to carry a balance, if you already have several credit cards, or if your credit score can’t afford a twenty point bruise simply from obtaining a store card!

Interest rates are definitely something to consider before you get one of these cards. Store credit cards have interest rates that are, on average, six to ten percent higher than those of bank credit cards. This isn’t such a big deal if you pay off your balance in full each month. But cardholders who maintain a balance will quickly find that their initial savings are being lost to interest charges. This defeats the purpose of a store credit card, which is to help you pay less for your store purchases.

But there are some good reasons for getting store cards. If you have a favorite store where you’re likely to use the card on a regular basis, getting a credit card from them could be beneficial. Some stores offer substantial discounts to cardholders, in the form of specials, coupons, bonus points, advance notice for upcoming sales, and discounted goods and services. These savings can add up. They also tend to be easier to obtain than a bank issued credit card and can be good for those wishing to build their credit history.

It has been estimated that 500 million store credit cards are in circulation at any given time, and most of them were issued during the holiday season. When you’re frazzled from gift shopping and alarmed by your dwindling bank account, the ten or fifteen percent savings you could get by opening a store card might sound like a good deal. And it can be – provided you pay off the balance before you accrue interest.

Always read the fine print before filling out any credit card application.

Also remember, if you sign up for a store card, you might be signing away your privacy. Some stores are notorious for selling your contact information to third parties, who will then use the information to bombard you with marketing material. Once you are placed on a marketer’s list, you might find it difficult to get off again – and you might regret selling your privacy for that ten percent discount.

Jim Corbett is the CIO of Credit Web which offers Student Credit Cards as well as offering an in-depth supply of credit related information.

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Rodger said...

from personally experience I'd have to say No, stay away from them, normal credit cards are bad enough.

Bad Credit Lenders

Jeremy said...

i work at JCREW, and can tell you that signing up for their card is a pretty good deal. let me say that this is not a marketing gimmick, b/c i just got the job there and dont get anything for saying this. i think other stores policies are similar. you get 10% off your purchase for getting the card and if you spend $500 you get a $25 reward card in the mail. almost everyone spends that much in there.. we have some rich customers. as long as you pay it off, you can rack up some big time savings with cards like this

Stephanie said...

I got a card from the Gap. I do think I should have maybe made a bigger purchase for the first purchase (to save more money) but I've been getting lots of coupons and money off. I am beginning to notice that I do shop there a little more than I should because they give me coupons that I want to take advantage of before they expire. (that IS a big reason they have these cards...customer loyalty).
I do like having it though, since I buy almost all my black dress pants and khakis there.

Jeremy said...

yeah, they told us the stats but i don't remember them. people who have a card tend to spend a lot more money there. but you save a lot too. basically you just have to have control over your wallet. if you don't, you shouldn't get any cards at all.

Creative Investor said...

I would also have to go against the store credit cards: 1) Most of them offer a one-time discount 2) That's another credit card account to manage, another bill to pay 3) Most people use store credit cards very infrequently, so when you get a bunch of such cards and one day decide to get rid of them and close those accounts, your credit score will most certainly be affected in a good way. So, basically, I just don't think it's worth the hassle.

Anonymous said...

Some companies pay a lower card fee if it is their store card than with a generic visa/mc/etc. If you are the haggling type, you may want to try asking for a discount for using the store card even if they aren't offering a discount. we are only talking 1-3%, not 10%, but on a big enough purchase that can make a difference.

ispf said...

Jeremy, Stephanie: "people who have a card tend to spend a lot more money there. but you save a lot too." - I used to do a lot of this before, ie, spend a lot because I thought I would save a lot. But unless you need the stuff you buy, even if you are spending only 75% of the original cost (ie, 25% discount), it is still money thrown away. I have a gap card, but I called them and got my name taken off their mailing list and do not receive their offers anymore. I think I have bought quite a bit of stuff already, and don't *need* that much stuff now. So, the saving I get by not being tempted to go shopping far outweigh the discount on the few items that I really want!

creative investor: "[...] one day decide to get rid of them and close those accounts, your credit score will most certainly be affected in a good way." From my understanding, closing a credit account has a negative effect on you credit score. From what I know, there are two things that come into play here - age of the account and the utilization. If you close an older card, then the average age of your credit history goes down. This will bring down your credit score. Also, if you had a high credit limit on the card but never really used it, then the percentage of utilization across all cards will be lower before you close the card than after. So if you close that line of credit, again your credit score will to go down. If you plan to cancel store cards, I would recommend that you do it at least 6 months before you apply for any big loans (mortgage, car etc) so your credit score has enough time to bounce back.

anonymous: That is interesting. I never thought of that. Have you tried it before? How much discount did the store give you?