Should You Use Store Credit Cards?

Nearly every store, big and small, offers a store credit card. Although this concept initially began with large department stores, it is now possible to find store credit cards for gas stations, home improvement chains, and even candle and bath shops in the mall. In short, stores make it as easy as possible for you to purchase their goods – whether you can afford it today or not.

The Dangers of Store Credit Cards

The primary temptation to pick up a store loyalty card is the promise of significant savings. From an initial 15-20% off, to birthday discounts, special coupons, and free bonuses, these loyalty credit cards promise to save you hundreds, or even thousands, of dollars every year.

However, all is not as it seems. The only reason that stores offer these loyalty cards is because they make money off of them. They wouldn’t offer 15% off an initial purchase unless, on average, they made more than that amount back.

Therefore, there are several risks associated with store credit cards.

1. They Have High Interest Rates

Although many of these loyalty cards offer high discounts, they also have high interest rates. Even if you save 15% on that first purchase, if you fail to pay your bill immediately, it won’t be long before you have paid the store far more than the discount was worth. In fact, if you only pay off the minimum balance, there is a good chance that the item will end up costing you double what you initially paid for it.

2. They Often Have Late Payment Penalties

If you are purchasing $3,000 worth of furniture, a store credit card that offers a 0% interest rate for the first 6 months sounds too good to be true. And often, it is. With many of these no interest rate promises, if you fail to pay off the amount in full at the end of the grace period, you accumulate all of the back interest. In other words, if you only make the minimum payment on your furniture at the end of the six months, you will get pummeled with the 10-15% of back interest – adding $300 to the cost of your furniture.

3. They Can Affect Your Credit Score

A store credit card affects your credit just as a regular credit card would. If you open up several credit cards in a short period, it can do serious damage to your credit score – making it difficult to borrow for more important purchases (such as a car or a house) in the near future.

Store Credit Cards Are Great For Disciplined People

It is true that a store credit card can save you a significant amount of cash. However, if you fail to pay off the debt every month, the benefits will quickly erode.

For someone who is disciplined, closely follows their budget, and already has good credit, signing up for an occasional store loyalty card can be beneficial.

However, if you have struggled to pay off debt in the past, have a small bank account, and aren’t aware of the exact amount in your bank account, it’s probably a better idea to avoid the store credit cards. Instead, wait for sale days, find coupons, and patiently save up. This discipline will relieve countless future headaches.