Store Credit Cards a Good Deal?

Everyone who has gone into a retail store has heard the question: Would you like to save 20 percent off your purchases today? We know without asking what that means: You have to apply for the store's credit card.

Store Credit Cards
Store Credit Cards

The question prompts a split-second decision, but applying for a store card warrants some forethought. A new account impacts your credit score and opens up another avenue to debt, so that split-second decision can have repercussions long after the items you bought for 20 percent off are gone. Store cards are known to have advantages and disadvantages that general purpose cards don't have.

Consider the following pros and cons before you apply for a store card.

Promotions, discounts and other perks. Besides the initial discount, some cards offer continuing discounts, exclusive shopping days and other rewards that would benefit frequent shoppers. For instance, Macy's credit cards offer returns without a receipt, and depending on the card type, goodies such as free gift wrapping, basic alterations and $25 gift certificates. Nordstrom's retail credit card gives its cardholders $20 for every 2,000 rewards points earned.

Some store card programs offer special coupons to cardholders. "Yet many of these promotions and sales can simply be had by signing up for the store's e-mail newsletter," says Fatima Mehdikarimi, founder of Ask a sales associate if there's a mailing list. You might find that you don't need the store's card.

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Store cards that bear an American Express, Discover, MasterCard or Visa logo can be used at any establishment that accepts that co-brand. On top of their flexibility, these co-branded cards can have rewards programs that go beyond in-store perks. For instance, the Sears Gold MasterCard allows you to redeem points on round-trip airline tickets, among other items. The TrueEarnings Card from Costco and American Express offers cash back for purchases, including 3 percent for gas and restaurants, 2 percent for travel and 1 percent for everywhere else.

Make sure to compare the card program with those of other rewards cards to make sure you're getting the maximum amount of perks for your points.

Helps build credit history. Folks looking to establish or rebuild a credit history may find a friend in store cards. Retail store card issuers "are historically known for being more lenient when it comes to the credit profile of the consumer that they'll approve for a card," says Curtis Arnold, founder of and author of "How You Can Profit from Credit Cards." In other words, they are more likely to approve people with lower credit scores.

"Retail cards can be great way to help build your credit, assuming you don't carry a balance or much of a balance," Arnold says. He contends they're much cheaper to use than "fee harvester cards" meant for subprime borrowers. The latter zap people with numerous fees that retail cards don't charge.

Co-branded store cards, however, are harder to qualify for because the issuers typically price for risk -- meaning that people with higher credit scores will get lower interest rates.

The long-term effect of handling a store card well can add points to your credit score. Using these cards sparingly and keeping statement balances low can reduce your debt-to-credit limit ratio, which makes up 30 percent of your credit score.

High interest rates. Store cards tend to have APRs of 20 percent or more, says Shyam Krishnan, an industry analyst with Frost & Sullivan, a business research and consulting firm.

Should you apply? It more