Friday, November 5, 2010

Why shouldn’t you get a store credit card?

I always restrained myself from signing up a store card to save 10% off or get a lower interest rate on financing. However recently, I signed up for a store credit card, which is not store-brand visa or mastercard.  I signed up because it saved me few dollars on a big purchase.  Now, I am stuck with that store credit card because I can’t use it anywhere except that store -- also the APR is too high to use it on other regular purchases.
This new store credit card has single handedly knocked off dozens of points from my credit scores.
This is how your store credit card hurts your finances.
  • Even before signing up, a new credit inquiry is added to your credit report, lowering your credit scores.
  • After account is open, this new account lowers the average age of your credit accounts further lowering your credit scores.
  • If you make a big purchase (since you got discount), the ratio for used credit increases, increasing your credit utilization and again lowering your credit score.
  • Your interest increases after an introductory period. So, a purchase with future interest could cost you even more.
  • Normally, people tend to overbuy when given a discounted purchase. You end up paying more for things you don’t really want and definitely don’t need. 
Image based on photo by stevendepolo

4 comments:

  1. Hmm...I never thought about it that way. Too bad I didn't read this article before signing up for a JCPenney card 2 weeks ago! Yeah, I got 25% off my purchase- but at what cost?

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  2. @Halina, even knowing these fact didn't stop me from signing for store card when tempted with low interest offer.

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  3. I think by mentioning such disasters that has occurred will warn the rest of us. I am sure these kinds of credit card offers from stores make it very tempting to use, but it does not take too long to realize the mistake committed. Thanks for the mention.

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  4. Adding a new card could instantly lower your credit score.

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