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The 9th day of credit: New cards

By Janna Herron · Bankrate.com
Thursday, December 12, 2013
Posted: 5 pm ET

Besides the sales and discounts that stores are dangling in front of you, I bet the checkout dude has offered an extra 10 percent to 20 percent off your purchase if you just open the store's credit card. Sounds like a good deal, and for little effort, right?

Many Americans think so. The number of store credit cards is at its highest point since September 2009, according to a recent Equifax study. And the number of new store cards going to Americans with spotty credit has increased 15.8 percent since last year.

But these cards typically come with lousy terms like low limits and interest rates usually in the 20-percent range. This means if you roll over your store card's balance from one month to the next, you'll start paying for that discount in interest charges. What was once a 15-percent discount may end up as only a 2-percent discount.

Macy's credit card

Store credit cards can carry high fees. Photo courtesy: Steven Depolo/Flikr

So ask yourself, would you open a credit card for 2 percent off? I didn't think so.

There's also the risk you may overspend to take advantage of the card's initial discount. If you're the kind of person who can't resist a good deal, skip the store credit card because the only one getting a good deal is the store.

"Don't get lured in by the fancy store credit card offers," says Cameron Thompson, director of marketing at SaveUp, an online rewards program that rewards consumer when they save money, pay down debt and make good financial moves. "The opportunity to get 10 (percent) to 15 percent off of one purchase just isn't a good reason to open a new credit card."

And don't forget about the ding to your credit. Every time you apply for a credit card, even a store card, your credit report and score is pulled by the lender. This hard inquiry lowers your credit score and stays on your report for two years. If you open several store cards during the holiday season, you could end up hurting your credit score more than you intended. That means higher interest rates on any new credit or loan you take out.

So here's my caveat: Store credit cards are not all bad. If you manage credit cards well -- by paying off your entire balance every month and on time and charging only what you can afford -- then getting a store card from a store you visit frequently may make sense. That's because store credit cardholders receive special discounts and promotions throughout the year.

Otherwise, skip the store credit card and wait for sale instead if you want a discount.

Do you open store credit cards?

Follow me on Twitter: @JannaHerron.

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