Store Credit Cards - Good or Bad?
We've all been at the checkout at our favorite store when the cashier asks if we would like to save additional money by opening a credit card with that store. What should you do?
The answer isn't a clear yes or no, it all depends on the fine print, your financial habits and the card itself. Here are the answers to a few of the most common questions and a few points to consider before applying...
How does it affect my credit?
The good news is store credit card won't have a big impact on your credit score if you use and pay it off like you would any other card. If you are tempted by that savings at checkout it depends more on your own habits and credit than anything else - the application or opening of the card will not have a major impact itself.
They are actually great first card for someone with no credit history or someone trying to rebuild their credit.
With a low spending limit and only being able to use it at one store it can build up a credit history in a positive way for someone without any. After using it for some time and making on-time payments you can move on to a major credit card which impacts your history and score more.
Why am I given such a low limit?
One of the reason store cards don't have a huge impact on your credit is because they generally allocate lower limits. Unless you are opening a co-branded card (one that has a Visa or MasterCard imprint) you may only get a borrowing limit of a few hundred dollars. But since you can only use it at one store a low limit isn't such a bad thing.
Co-branded cards (that have the Visa or MasterCard imprint) that can be used anywhere and still retain store rewards tend to have larger limits as they are considered a major credit card. If you have no credit or a rebuilding starting with the store one and graduating to the major card over time is ideal.
But if you shop at a store a lot and are financially responsible then the co-branded card may save you on purchases you are already making at your favorite store.
Do they have higher interest rates?
Store credit cards generally have higher interest than all-purpose cards. According to CreditCards.com a retail credit card has an average APR of 24.99 percent compared to the 16.15 percent APR normal cards carry.
The key to overcoming this is to never carry a balance. Use the card then pay it off. Many stores let you make payments right then and there after a transaction. If you avoid carrying a balance the higher interest rate won't be a problem. If you've had problems making payments on time or a habit of charging large purchases you can't pay off in 30 days then maybe avoid these cards.
We're here to help you rebuild and understand your credit. Give us a call to get started or learn more about what we can do for you 1-800-431-0449.