You are standing at the cash register about to make your purchase, when the clerk asks you if you will be paying with your store credit card. If the answer is “no,” you know what probably comes next: the pitch to open one right now and get a discount on the items you are about to buy.
In a split second, you need to make a decision one way or the other. Applying for a store credit card is an important decision, though, and making that choice under pressure isn’t ideal. So here are five questions to help you evaluate whether you need a store credit card, before you hit the mall.
How Much Will I Really Save?
In most cases, the retailer will offer you a discount on that day’s purchases, and usually in the range of 10% – 20%. While it’s nice to pay less, it’s not always necessary to open a credit card to accomplish that. You may be able to find coupons or coupon codes that allow you to get the same deal. Or you may get an instant discount or coupon if you sign up to receive emails or text messages from the retailer.
Sometimes the new account discount will be extended for purchases made within a short time period (24 hours, for example), as an incentive to get you to spend more. The risk here is that instead of saving money, you end up spending more than you had planned.
Plus, the interest rates for department store credit cards are almost always on the high side, often 19% – 22% or more. If you carry a balance, the interest you will pay will likely exceed the amount you saved with the discount.
Strategy: Set your savings threshold ahead of time. Is it only worth it to you if you will save $100, for example? Or $250?
How Often Do I Shop Here?
Note this question is not, “How often will I shop here?” After all, that’s the main reason the store wants you to get the card – to encourage you to come back and spend more. Since a wallet full of credit cards can be an open invitation to overspend, and may affect your credit scores, you want to be choosy and only apply for cards at stores you regularly frequent.
Strategy: Sign up only if shop at this store on a regular basis. Again, set the threshold in advance. Is it once a month, or once a week?
Will It Help Or Hurt My Credit?
When you open a new credit card, you may see a dip in your credit scores for two reasons: one is the inquiry that is created when the issuer checks your credit score. An inquiry may cause your scores to drop, though usually not more than a few points. In addition, a new account with a balance is often seen as a risk factor. But as long as you pay on time and keep your balances below 20% – 25% or so of your credit line, things should even out over time.
On the plus side, you will have a positive new credit reference which can prove beneficial if you are trying to build or rebuild credit.
If you are declined, the fact that you are turned down won’t hurt your credit scores (beyond the inquiry), but of course it can be embarrassing to get rejected.
Strategy: Check your credit reports and credit scores now so you know where you stand. If you have good credit, you shouldn’t have trouble qualifying for most retail cards. You can get your credit score for free at Credit.com.
Is This the Right Time?
If you plan to apply for a mortgage, car loan or any other major loan within the next six months, politely decline. It’s probably not worth the risk to your credit to save a few dollars at the register. This is particularly important if you are in the process of getting or refinancing a home loan. In most cases, your credit reports and scores will be reviewed right before the loan closes and if your scores have dropped – even by a few points – you may derail the loan.
Strategy: If you need to protect your credit scores for another important loan coming up, say no.
Is This Store Credit Card Good?
Unless you are reading this on your smartphone or tablet in a store, you are probably not shopping right now. That means this is a good time to think through the answers to these questions and, if you do want a store credit card, do your homework. Retail cards aren’t all bad. In fact, there are some very good ones that can save savvy shoppers money. You can find reviews of the best store credit cards at Credit.com.
Some in-store credit cards, such as those you’ll find at appliance, home improvement or furniture stores, offer 0% financing for a period of time. That can be a great way to finance a large purchase interest-free, but read the fine print carefully. If you miss a payment or fail to pay the balance in full by the time the interest-free period expires, you may be charged interest retroactively from the date of purchase, often at a high interest rate.
Strategy: Know which store card(s) you want before you are in the checkout line.