Filling your wallet or purse up with retail store credit cards is like filling your pockets with lead; they will only drag you down. Retail outlets make their charge cards incredibly tempting by promising discounts at the register if you apply on the spot. A slight discount at the register for a one-time purchase isn’t worth the total price you pay for store credit cards.
High Interest Rates
Retail store credit cards actually work like high-risk credit cards. They are easier to get approved for, but they come with outrageous interest rates. Most retail store cards come with a 15 – 20% or higher interest rate. The items you buy on your store card will likely end up eventually costing you twice the price or more than if you pay by cash.
They Don’t Help Your Credit
The best way to maintain a good credit score is to keep a reasonable debt to balance ratio. You need credit cards with high credit limits, but small balances. Many store credit cards come with a low credit limit and offer tricky incentives – such as cash back for spending a more than you might have otherwise – that encourages people to run up high balances.
High Interest Rates
Retail store credit cards actually work like high-risk credit cards. They’re easier to obtain, but they come with outrageous interest rates. Most retail store cards come with a 15 to 20% or higher interest rate. The items you buy on your store card will likely end up eventually costing you twice the price or more than if you pay by cash.
You Lose Purchase Power
If you’re in a situation, such as Christmas shopping, where you need to buy a lot of items on credit you are limited to shopping in the stores that you have credit cards for. You can’t shop around for better deals nearly as well as you could with a regular credit card. You could end up paying 20% extra or more for an item because you couldn’t shop around for the best possible deal.
More Accounts to Manage
Multiple store credit cards means more monthly bills to pay, more accounts to keep track of, and more likelihood that you might miss a payment. Even the best home money managers sometimes make mistakes. Like the high interest rates, late-payment fees for store credit cards can be ridiculously high. Most people are better off to have one or two regular credit cards with high credit limits so that it’s easier to track their accounts.
Credit cards should always be used wisely, but that’s practically impossible with store brand cards. Most store cards aren’t anywhere near as economical, or flexible, as a bank-issued Visa or MasterCard. Next time you’re tempted to save money at the register by signing up for a store credit card, think about how much more money you’ll save if you don’t.
About the Author: Tony Smith is a full-time freelance writer with a passion for personal finance. He also writes about careers in health care and is a contributor at aboutmedicalbillingandcoding.org.