Store Credit Cards – Save Now, Pay More Later – Episode #91

Store Credit Cards

About this time of year you see it everywhere.  No, not snow [darn global warming].  Store credit card offers.  You know the pitch.  You are standing at the check out line and the sales associate smiles and says “would you like to open a {insert retailer name here} credit card?”.  The appropriate response is almost always no. Why?

1. Store cards have higher interest rates than most credit cards.  If you are a balance carrier, those savings are going to be eaten up rather quickly.
2. More importantly, you could be trading small savings now for a big cost around the corner.  Let’s say the average cash register rings up at $300 during the holidays [this is high by the way, but useful for the example].  If you open a 15% off store credit card, you’ve saved $45.   In January, you decide to refinance your home.  Let’s say you have a $300,000 mortgage, and your new store card caused a 10 point slide in your FICO credit score and that means you don’t qualify for the best rate.  Your payment ends up being $1,779 vs. $1736 or $43 more.  But that’s $43/mth, $516/year or $15,480 more over the course of the loan.  How’s that $45 savings looking now?  Pretty ugly.

Sure, for those of us who don’t need credit in the near future, an argument for a store card could make sense.  And for some us, store cards can help build a thin credit file.  But, it’s also another card to worry about id theft on, and the hassle factor of remembering the card can be annoying.

Conclusion: Stay away from these store cards.   At worst, they cost you big, at best, they save you a little.

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