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Pros and cons of store cards

By Leslie McFadden ·
Thursday, November 4, 2010
Posted: 3 pm ET

With the holiday shopping season almost upon us, prepare to be tempted at the register by attractive discounts in exchange for opening up a store credit card account. The question is, are these offers ever worth accepting?

While the initial discount is an obvious money saver, store cards have several important drawbacks to consider.

As with any application for a new credit card, opening a store card account will generate a hard inquiry on your credit report, dinging your credit score a few points. In addition, the new account will lower the average age of your accounts. Because the credit limits on store cards tend to be low, it's easy to use up most of the limit, which can lower your credit score due to the increase in your balance-to-limit ratio.

If you tend to carry balances month to month, store credit cards are a bad deal. They typically have interest rates in the 20 percent range, which can soon offset any savings from that upfront discount.

Can getting a store card sometimes be a good idea?

If you can always pay in full and on time, the high interest rate doesn't matter. Ongoing discounts and other perks unavailable to customers without the store card can make the card worthwhile.

Points to consider:

  • Can you get store discounts without the card? Many stores have newsletters through which you can get coupons and sale alerts. The internet also makes it easy to find out about discounts at stores you frequent. Becoming a fan of the retailer on Facebook is another good way to track promotions.

If you already have rewards credit cards, log onto your issuer's website to see if you can score discounts or extra cash back at your favorite retailers. For example, at cardholders can earn a 5 percent to 20 percent cash-back bonus at participating retailers.

  • How frequently do you shop at the store? If you're in the store only because of the gift you're buying, then it doesn't make sense to open an account there.
  • Does the card offer any benefits after account opening besides discounts? Ask the sales associate or cashier about other perks once you sign up, such as free shipping on online orders, free basic alterations on in-store purchases and reward gift cards.
  • Can you use the credit card outside of the store? Though they're harder to qualify for, network-branded store cards such as Visa and American Express cards are a better deal, since they can be used anywhere the card brand is accepted and generally offer better benefits than store-only cards, such as rewards programs.
  • Are you trying to keep your credit score high? If your credit score needs to be in pristine shape for an upcoming loan application, hold off on opening new credit card accounts.
  • Would having it encourage you to overspend? If you have trouble staying out of the shopping mall, the enticing discounts offered after you accept the card might be too tempting to resist. When you can no longer pay off the balance, the interest charges will quickly negate the coupon savings.

What are your favorite store cards?

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Debra James
November 08, 2010 at 8:24 pm


With regards to the secured interest, is the repossession handled similar to car repos where the item is sold, and then the original purchaser is responsible for the balance? Or, does the retailer just reclaim the item, and the purchaser is left responsible for the balance of the account? Also, who does the calculation to determine which items have been paid off through the monthly payments? For exmaple, if the person bought many electronic items on the same day, and had made payments for several months/years before defaulting; how are those payments applied to determine which items are elegible for repossession?

I am just curious.

November 04, 2010 at 5:28 pm

I do agree that the majority of these cards carry a 20 percent plus interest rate on the balance. Not the card you really want to run a balance on. I am also seeing that several are switching from one card brand to the next i.e Visa to Mastercard or American Express. What really concerns me as a bankruptcy attorney is how easy these cards are to get. It is not uncommon for someone in trouble to have 10 to 15 of these store cards with large balances. I don't think people would be so deep in debt if the merchants were not handing these out like candy at the cash register pushing the customer to apply for some one day discount. Another reason to avoid them is that some of the merchant cards try to claim they have a secured interest in whatever you bought from them mainly in the electronics arena. Very tough for them to prove they are secured, but they can sure make an effort to repo whatever you bought from them if you default on the payments.