Are Retail Credit Cards Ever a Good Idea?

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"Would you like to open up our store credit card? You'll save 15% on your purchase today!"

For anyone who has ever been shopping, this invitation is commonplace. Almost every retail store—from grocery stores to department stores to furniture stores—offers their own credit card. Retail credit cards are easy to qualify for, often attracting people with no credit or those with bad credit. They also usually accompany incentives like no interest for a year or a percentage off your purchase, making them seem like a great idea. But are they?

The Dangers of Retail Credit Cards

Many people open retail credit cards without thinking of the possible consequences. Although they must follow the same credit card rules that all card companies must follow, retail credit cards are not like traditional credit cards in many ways.

Next time you think of opening a store credit card, consider these potential pitfalls that could lead to credit trouble:

  • Interest rates are higher. The average interest rate for a traditional credit card is anywhere between 14 and 16 percent. For store credit cards, the average interest rate jumps to at least 20 percent and even more if the applicant has just average or below average credit. This could end up costing you a fortune if you carry a balance.
  • It affects your credit immediately. Any time you apply for credit, it shows up as an inquiry on your credit score. While just one inquiry won’t make a huge difference (around 10 points), if you make it a habit to open up retail cards to save money, it can really lower your score.
  • Credit limits are low. Most retail stores offer very low credit limits. This may sound like a good thing, but low limits make it easy to max the card out or go over the limit. Not only does this incur over limit fees, but maxed out scores can also lower your credit score.
  • You probably won’t pay it off. Many people open retail credit cards with the intention of paying off the balance immediately, then never using it again. This rarely happens, which is why so many retailers are quick to offer great incentives. People who open up store cards right at the counter are often impulsive spenders and more likely to charge their cards up.

Avoiding Retail Credit Danger

Despite the drawbacks, retail credit cards can be useful. They can help you establish a credit history, and many offer great perks that are only available to cardholders.

If you want to enjoy the benefits of retail credit cards and avoid the dangers, make sure you follow these guidelines:

  • Don’t open a card on impulse. Think it through before you open up a retail credit card. Ask the store associate for a brochure, then read over the terms. This will help you make an educated decision. If you plan on applying for a car or home loan in the next year, wait until after you’ve done that before adding new credit.
  • Don’t carry a balance. Retail cards may have higher interest rates, but you won’t have to pay a penny in interest if you pay the balance off every month. And if you open a card to save a percentage on a purchase, make sure you have the funds available to pay the balance off before you put it on your new card.
  • Remove the temptation. If you’re tempted to run up your card every time you go shopping, remove it from your wallet so it’s not a temptation. This will help you avoid getting into spending trouble.

If you’re considering opening up a retail card, think carefully before you do so. Retail credit cards can be useful and even offer savings—but only if used correctly.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.