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?
- 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.
- 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.
