The Budget Fashionista’s Annual “Being Broke Ain’t Cute” Series features tips and advice to help you improve your personal financial health. For more personal finance information, please visit our Financial Health Series.
You approach the register with your highly discounted items in one hand and the coupon you brought in the other hand. You’re feeling good about finding such fierce clothing at such great prices when the inevitable occurs . . . the gal at the register cheerfully suggests you open a store credit card account with the store and receive an additional discount. If you’re like most people, this thought crosses your mind: “Well now, that sounds like a good idea.” But before you hop at the chance to grab yet another credit card you need to stop and quickly analyze what this nominal discount will actually do to your credit rating.
The Store Credit Card Trap
What you may not realize is that clerks in stores are trained to get customers to fill out credit applications almost as much as they are trained to know about the merchandise they sell. Salespeople are given quotas to fill as to how many credit applications to bring in. In some instances, managers stress credit applications more than they do the actual sale of merchandise.
Credit is a big deal to retail stores. If a store can get you to obtain a credit card from them then chances are you’ll spend more and wind up paying some interest at some point. This makes you a more attractive customer.
Now you know why every time you go through the checkout line the person at the register asks you, “Can I save you 10% by opening a card for you today?” They’re not doing it because they really want to save you 10%. They’re doing it because they’ve been trained to and because they have a quota to fill.
Store Credit Cards: Just Say No
Once you start to think of a store credit card as a product – instead of some sort of extra the store offers as a courtesy to their customers – then it’s a little easier to decline the clerk’s offer for a credit card application. After all, if you went in to buy a bag of oranges at a grocery store and the clerk at the register asked you, “Can I interest you in this loaf of bread too?” you might think to yourself you don’t even need the bread and how weird it is for the clerk to offer you bread at the checkout. The same thing with store credit, you already are paying for the item and the 10% discount is small compared with the high increase rates (upwards of 21%) store credit cards carry.
Some other things to consider before opening a store credit card
1. Opening a new credit account can be like adding another straw onto the metaphorical camel’s back. Stores want you to open a credit card because you’re more likely to spend more than if you were to spend with cash, and you might choose to shop at that particular store over a different store simply because the credit was extended to you. Not only is the store trying to get your money, but the store is also trying to make you a loyal shopper. Do you really need to add another credit card to your wallet’s arsenal?
2. You should also realize that applying for a store credit card will absolutely affect your credit score, even if your application is denied. Having too many inquiries on your credit report makes you appear to be a perpetual credit hound, and this can lower your chances of eventually getting approved for a car loan or mortgage.
When to Consider a Getting a Store Credit Card
There are a few (very few) cases where getting a store credit card is a good option. When you are buying large purchases (over $1000) like furniture or appliances, the discount offered by a store credit card can be quite substantial. Also stores, like Macys, tend to give a great deal more flexibility to returns on purchases made via their store credit cards, versus other forms of payment. Also deferred payment options can be a great way to finance a purchase, without incurring any fees or interest (note that if you don’t pay the bill in full by the end of the deferment period, the creditor will often assess interest on the purchase STARTING FROM THE DATE OF PURCHASE- meaning for 12 month deferred payment option, the creditor will tack 12 months worth of compounded interest onto your amount due if the bill is not paid in full by the end of the deferment date).
Times to Consider a Store Credit Card
Making a big purchase like furniture, wedding dress, jewelry,etc. The additional 15% or so off can make a huge dent when making a large purchase.
Deferred Payment is available. This is particularly useful if you’re buying furniture for a new house or apartment and may not have cash due to a large down payment or deposit. Look for a deferred payment period of at least 3 months (6 is better) and make sure to pay the balance off at the end of the period. Some companies may charge you the interest accrued over the deferred period if the balance isn’t paid in full at the end of the period.
You need to build your credit rating up. Store credit cards are often easier to obtain than say a bank credit card and can be used to build up your credit ( of course you need to use it responsibly, they also carry higher interest rates).
So What’s the Verdict on Store Credit Cards?
Unless you’re making a major purchase, like furniture or appliances, or it’s probably best to skip the store credit card and use another form of payment.