Why You Shouldn’t Use Retailer Credit Cards

When the holiday season hits, your wallet takes the punch.  No matter how you slice it, Christmas is an expensive holiday, and it starts the day after Thanksgiving!  People have many different strategies for dealing with the financial pressure that comes with the spirit of Christmas, one of which being signing up for retailer credit cards like they’re going out of fashion. Retailers devised an excellent credit scheme that attracts many people during the holidays because they allow shoppers to buy now and pay later.  Plus, stores have recently added the extra lure of saving 10% or more on purchases made the same day you sign up for a card. Applying for retailer credit cards during the holidays (or at any other time, for that matter) is definitely a tempting thing to do, but there are at least three good reasons to run in the opposite direction when a cashier asks if you want to save 10% on today’s purchase.

First: Interest Rates

One of the ways that stores attract so many credit card borrowers is by lowering their lending requirements, meaning that they will shell out credit to almost anyone who applies for it.  Why is this bad?  It’s bad because the store makes up for the high risk of defaulting by raising the interest rates through the roof.  Stores don’t want to be held accountable when you can’t pay your card, so they give themselves what you can think of as a little insurance: usually taken in the form of 15-20% annual interest.  Sure, if you pay off your card right away you won’t have to really worry about interest, but stores are counting on the fact that you can’t pay right away.  Otherwise, why would you be applying for the card in the first place? 15-20% might not seem like a lot, but when you compare it with the 10% savings from the one time purchase you made, it actually leaves you paying more than what you would have paid without the card.  You’re better off using your bank’s credit card, which probably has a much more reasonable interest rate, and which won’t leave you…

Second: Credit Score

… down several points on your credit score.  Every time you apply for a credit card, each of the three credit bureaus takes note — and when you apply for several at once, they take that as a bad sign, and drop your credit score significantly.  What’s more important is that these negative marks stay on your record for a long time (seven years) and can reduce your credit-worthiness for other, probably more important purchases, like, say, a car, or a home.  Store credit cards might seem like a good idea at the time, but they will probably leave you with a headache later, plus they won’t give you…

Third: Rewards

Rewards.  One of the biggest perks of using a bank’s credit card is that they often offer cash back, savings at the retailer of your choice, travel discounts, frequent flyer miles, and a whole host of other great rewards for using credit wisely.  Stores generally don’t offer any such perks, and if they do, it’s usually only good at their store, and the discounts are mediocre.

Retailer credit cards aren’t all bad, but you’re probably better off using the card you’ve got, so that you aren’t buried in interest rates, bad credit scores, and regret over all the cash back you missed out on by not using your bank’s card to do your holiday shopping.  To be fair, some retailers are radically rethinking their credit card policies — but if you do choose to apply, make sure to read the terms carefully, and don’t sign up for anything that will hurt you in the long run.

Byline:

This is a guest post by Jane Smith from background check. She is a Houston based freelance writer and blogger. Questions and comments can be sent to: janesmth161 @ gmail.com

 

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