Store-issued credit cards can save you 15-20%, which might sound like a great way to get an easy discount on that pair of shoes you’re dying for. But all the drama these cards inflict on your credit just don’t make them worth it.
John Ulzheimer has been vocal about his disdain for store credit cards. He even once called them ‘subprime’ on the show. They have notoriously high interest rates, even if you have good credit, he said. They also work on a different dynamic as regular credit cards. Basically, retailers make margin on merchandise as well as the interest of their credit cards, whereas banks don’t have merchandise to depend on. That means stores are more willing to give credit to more shoppers with bad credit because it gets people to come into the stores to shop.
When the salesperson offers you a store credit card next time you’re at the counter, remember that if you sign up you’re applying for credit! Your credit report will be pulled, an inquiry will be left and a new account with a low credit limit will be put on your report. The low credit limit is hurtful because it means even modest shopping can leave you with a high utilization percentage and thus lower credit scores.
Store cards are the low-hanging fruit when it comes to establishing credit, Ulzheimer said. They should be avoided at all costs, but if you find yourself opening one make sure that you pay the balance off in full after the first month and then leave the card unused to help build credit. The last thing you want to do is carry a balance on these cards.