Signing up for a different store credit card at all of your favorite chains can be risky business—subsequently tacking on higher fees, fewer savings and dissolving your credit score with each new card. These store credit cards can quickly empty your pockets because they normally have low credit limits, making it simple to exceed those limits and rack up fees. Here are the top five reasons why store credit cards are bad news (and may require credit repair later).
Masked benefits for shopaholics
Shopaholics: these cards can be fuel to the spending fire. The masked benefits of a 10% discount on your store purchases can induce the temptation to spend. Store credit cards are bad if you’re trying to stifle your spending—they’re the blinking light that your mind might see as the “A-OK” to start purchasing, but it’s really an excuse to hit the stores and spend irresponsibly. The prospect of 10% off store items might sound like a sweet deal at a glance, but if you’re not diligently paying off your bill each month, it can become a slippery slope into debt and absurd extra fees. If you pile on various store credit cards, it can count against your credit score. Ideally, you should have just three open credit cards.
An expensive purchase is also veiled to seem less pricey; a store credit card will perhaps shave off $30 from a $300 purchase, which appears to deliver a nice price drop. The long-run numbers, however, might tell a different story: you’re then tempted to purchase at steeper price points, thus planting the seed for excessive spending and the 10% discount can become more of an expense than an investment. You may save money in the moment, but you’ll probably pay more in the long run.
Pretty-penny interest rates
Store credit cards are bad for your wallet, thanks to their ghastly interest rates. Annual percentage rates on store credit cards are bad, leaving you with higher payments and fewer actual good deals on your purchases. An average APR can total about 22.99% with these cards, whereas somewhere between 10% to 15% APR is typical for a regular credit card. These store credit cards typically have little to no grace period, which means the interest starts to accumulate the second you first swipe your card. Your first bill for a store credit card often already comes with a high finance charge.
Detriment to credit score
Even just applying for, cancelling or swiping a store credit card can affect your credit score. Applying for a store credit card runs a credit check, which can change your credit score right there in line. Simply applying for these cards can lower your credit score for an entire year, even without activation. Mainstream (FDIC) bank credit cards can help your credit score more than store credit cards. That’s why it usually makes sense to stick with the big names when it comes to your credit score.
Extra responsibility outweighs benefits
It’s necessary to be diligent about store credit card payments, or they can add up and affect your pockets as well as your credit score. A store credit card is one more thing to keep track of, and if you have more than one such account open, it makes for more to remember to pay off or to present at the register. Missing out on the discounts you set out to attain in the first place—and instead paying interest on the card—can be a poor spot to find yourself in.
Lower age of credit
The longer you’ve had credit, the better. Newly activated credit cards will decrease the average age of all your credit accounts combined, which may lower your credit score. Again, keeping the credit card count to a minimum is more beneficial for your credit score. If the credit card count stays at two to three, you’ll most likely hold fewer credit-driven regrets.
Don’t ever open a new store card just to get a discount on your purchase that day. It can hurt your credit score and make you tempted to spend more than you would otherwise. “FICO high achievers” that have scores over 800, opened their most recent card at least two years ago and the average age of their accounts is 11+ years.
If there is a store you shop at regularly, and you want to a card, you may want to inquire if their card is through an FDIC bank (for example Sears and Costco are Citibank cards); credit scoring will treat them like bank cards. Never get a card through a finance company (a non-bank); credit scoring does not like finance companies. Most of all, don’t pay interest – only charge what you can pay off that month. Also remember that it never helps your credit score to close a credit card once opened.
No matter what your situation, Go Clean Credit has a solution. We have many credit repair programs that are available to help you overcome your credit situation and place you back on the path to financial success. Real credit restoration is not a once size fits all model and we tailor your needs to the right program, but most people can start for just $99 per month.
We have fixed price programs that get you back on track in as little as 5 months, debt resolution solutions, programs geared toward people who have had recent short sales or foreclosures and many others. Help is just a free phone call away or you can fill out an appointment request. Contact Go Clean Credit to schedule a free consultation today.