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.