Four Big Drawbacks to Store Credit Cards

The other day the Honeybee applied for a store credit card to a woman’s clothing store in order to take advantage of a deal that gave her a one-time savings of 15% off her purchase.

To tell you the truth, I’m not really that big of a fan of in-store credit cards. But because the Honeybee and I are extremely disciplined when it comes to our finances and paying off the household credit cards in full at the end of each month, I didn’t really mind. After all, it’s not the first time we’ve decided to take advantage of such a promotion.

In general, store credit cards can have several potential drawbacks that should always be considered before committing to sign up for them. Here’s a list:

1. Dubious dispute resolution service. Over the past several years, I have had a couple of instances where I was stuck with an unsatisfactory service or product that the vendor refused to correct. Both times, my general credit card company came to the rescue and resolved the problem. You usually get no such benefits with store cards; if you have a problem, you are on your own.

2. Increased susceptibility to mailing lists. It is not uncommon for consumers who sign up for store credit cards to find themselves on marketing mailing lists. Many large retail chains have been known to routinely sell personal data to third parties that are looking to interest you in their services.

3. Increased risk of adversely affecting your credit score. Believe it. This can happen in one of two ways. As the economy continues to wallow in the mire, more credit card applications are being denied than in the past when times were good and credit was cheap. For those with borderline to average credit ratings, even one rejection can affect your ability to get credit in the future. If you are unsure whether your credit is such that you may be denied, request a free credit report first. Your credit score can also be adversely affected by having too many credit accounts open at one time. So if you already have lots of credit cards in your purse or wallet, carefully consider whether the addition of one more card is really worth it.

4. Higher interest rates. On average, store credit cards tend to have higher interest rates than general purpose credit cards. The Honeybee’s new card has a minimum annual percentage rate of 22.4%. Compare this with general cards that often offer regular rates under 20%. As a further point of reference keep in mind that, for those with excellent credit rates, general cards can be found for as low as 10%.

Yes, when you are at the checkout counter, getting a one-time discount of up to 25% may be tempting. But make sure you consider all the risks before making the leap, especially those of you who are unable to pay off your credit card bills in full at the end of every month.

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Comments

  1. 1

    says

    #2 is a big one that many people just do not realize. The good thing though is that as awareness is being brought to this issue many applications now offer an opt out from 3rd party communication – definitely a good thing.

  2. 2

    says

    The very best techniques I am aware of in order to improve credit score is to (1) Make payments by the due date every single month. This will place you on the road to developing a strong and trustworthy credit ranking. (2) Lower your Debt – Which means that pay not only the least sum of credit card amounts. (3) Know your limits – If you think you cannot afford something, then you most probably can’t. Doing these factors may perhaps imply an additional work or part time home-based business for quite a while in order to generate enough to reduce debt.

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