One in five Americans opened a store credit card for the discount in the last two years and nearly half didn't consider the credit or financial ramifications of doing so, according to a new survey from CreditKarma.com.
The survey released on Monday also found that the percentage of shoppers who opened a store card was highest in November at 13 percent followed by December at 11 percent. January was the month with the lowest percentage at 5 percent.
The online survey polled 2,051 adults in January.
While opening a store credit card isn't necessarily bad, it can affect your credit and finances. The store will pull your credit to approve your application and that "hard inquiry" will ding your credit score and will remain on your credit report for two years.
Store cards typically come with low credit limits of between $200 and $300, so it's easy to use up a lot of your limit. That affects your utilization rate, or the percentage of the available credit that you use, which is also a key factor in calculating your credit score. The rule of thumb is to keep the percentage below 20 percent.
So, if you open a store credit card with a $500 limit and put $250 in purchases on it, your utilization rate for that card is 50 percent, which won't help to boost your credit score.
Store credit cards also come with high interest rates, regularly in the 20s. That means if you don't pay off your entire balance, the interest charges will rack up quickly. Roll over the balance long enough and any discount you got at the register for opening the card -- such as 15 percent -- will disappear.
This doesn't mean you should never open a store credit card. If you consistently pay your other credit card bills on time and in full, you won't have a hard time managing a store card. Retailers also offer special promotions and discounts through the year for their store cardholders. So, if you shop at the store regularly, those specials may help you save money.
Have you opened a store card recently? Which one?
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