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Instant credit cards are no bargain
Your application can hurt your credit score
One day, you are at a department store, preparing to buy an item or two that you saw advertised on sale. You head on up to the checkout stand and pull out your checkbook, or perhaps a Visa card. The cheerful cashier tells you that if you are willing to sign up for the store's charge card, you can save ten percent on your purchase immediately. You decide to take their card, and the sales clerk tells you that the process will take just a moment.
The application process is completed in a short period of time. You then add your charge to the new account and receive your ten percent discount.
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Is applying for instant credit at a department store a smart decision?
On the whole, credit agencies urge all consumers to closely decide whether or not to take on new debt sources. A lot of department store credit cards have considerably higher interest rates than the major credit cards, such as Discover Card. Applying for instant credit may or may not be wise, depending on the state of your own finances. You do not want to just take a credit card on a whim, and you absolutely don't care to be encouraged by a small price reduction on an one-time purchase. Interest rates on retail store credit cards might be greater than 20%. what if there's no grace period on charges? You may have received a ten percent discount, but you may be dishing out twenty five percent interest on the purchase from the second you walk out the door! Do you know? Did you bother to do research before applying for the charge card? Once you own the card, will you use it? If you do, you could end up spending a lot more in yearly interest payments than if you had simply said, "No, thank you" and used the Visa or Mastercard instead.
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Each time you sign up for credit, it records a small "mark" in your FICO score. The credit bureaus consider it a harmful thing to have debtors applying for credit repeatedly, and they note all Credit inquiries on the credit record. It is very common to fall into the trap of simply accepting bank cards each time you have one marketed to you. A large number of applications in a short period of time can affect the score substantially. There are other things to think about besides the interest rate and the grace period. Too much financial activity can be a problem if you are about to buy a house and you require the lowest available interest rate. That retail store card you signed up for could, under the right circumstances, affect the interest rate you get on a house loan.
In the end, you will save a large amount of money by not using the high interest charge card that you didn't really want to begin with. For the most part, you should avoid these point of sale applications and stick to conservative, well thought out financial planning. Having your credit score harmed is far more important than saving ten percent on your immediate purchase.
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