Store credit cards are known for the deep discounts and special promotions they offer new and existing customers, which is why consumers sign up in droves. Opening a Sears credit card, for example, can help you save a percentage on your purchase – plus help you qualify for special financing options. Meanwhile, other store cards offer everything from a free gift to a constant stream of coupons and discounts. With those kinds of perks on the table, it’s hard to blame anyone for taking advantage.
Still, store credit cards aren’t all rainbows and sunshine. While these offers can be lucrative and convenient, retailer credit cards have still managed to get bad rap. For every benefit they offer, there is an equally negative downside that must be avoided. Before you get lured in by a clever sales associate, consider the benefits and drawbacks that come with signing up.
Are store credit cards good or bad? We’ll let you decide.
Why a Store Credit Card Might Be a Smart Idea
If you’re dying to get 20-40 percent off an upcoming purchase, your favorite retailer’s credit card might be calling your name. Here are four reasons a store credit card isn’t the worst idea ever:
- You generally get a fixed percentage off for signing up – Most retailers who offer store credit cards dole out huge discounts to customers who sign up for a store credit card and make a purchase. Depending on how much you’re spending, the discount can be dramatic.
- You can’t get into debt outside the store – While traditional credit cards let you run up balances just about anywhere, store credit cards only useful at one store – or a fixed number of stores under the same corporate umbrella. This limits the consumer’s ability to get into debt, which can be useful when debt is a concern.
- Retailer cards can help you build credit – Just like most traditional credit cards, store credit cards report to the three credit reporting agencies – Experian, Equifax, and TransUnion. Using your store card faithfully – and paying it off on time – can help you build your credit profile just like any other card.
- You may get access to special promotions – Certain retailer credit cards include special coupons and promotions as an incentive for loyal customers. If you shop at a certain store frequently anyway, the savings can really add up.
Why Store Credit Cards Are Less than Ideal
Just like with other credit cards, applying for a store credit card will result in a hard inquiry that could ding your credit score temporarily. However, that’s not the only reason many experts frown upon their use. Here are four reasons store credit cards leave a lot to be desired:
- Store credit cards have higher interest rates on average – While store credit cards may offer special discounts and incentives, they tend to charge sky high interest rates. If you plan on carrying a balance, the interest you’ll pay will likely wipe out any discount you scored when you made your purchase.
- Retailer cards won’t help you in an emergency – Since retailer credit cards are generally only useful at one store or a family of stores, they are normally of little use in an emergency. If your car breaks down, you end up with unexpected medical bills, or you find yoursef in some type of financial bind, a Macy’s credit card probably won’t help.
- New accounts lower the average age of your credit history – The average age of your credit history is a contributing factor to your credit score with the basic understanding that, the longer your credit history is, the better. Any time you open a new account – including a new store credit card – the average age of your credit history drops.
- Store credit cards might tempt you to spend – Since store credit cards are usually only useful at a handful of stores, they don’t serve much of a purpose outside of tempting you to spend money. And if you don’t pay off your balance right away, you could wind up in trouble – and deep in credit card debt.
Are store credit cards good or bad? At the end of the day, it’s up to you to decide. While a properly utilized store credit card can help you score huge savings over time, many people find that the drawbacks negate those benefits altogether.
Also remember that rewards credit cards offer many of the same perks – but without all the drawbacks. If you’re considering a store credit card for any reason, make sure to research all of your options first. And as always, make sure any decision you make is an informed one.