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Store credit cards are sometimes a good idea
Don’t take just any card; instant credit can be expensive
There are reasons why you may not want to take out a credit card from your local department store, but there are other, equally good, reasons why it may be a good idea for you. We will examine the pros and cons of using department store credit instead of a major card for your purchases.
Continued below
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Credit cards from department stores are expensive if you aren’t careful
The typical American consumer carries a whole wallet full of credit cards. In decades past, it was unusual to see a consumer with more than one or two; now the average is closer to ten. Banks and other lenders have made it easier than ever to take out a credit card account and spend money, all with a promise to pay sometime in the future. We have written extensively about how it takes patience to get just the right card so that you don’t spend too much money on fees, interest and miscellaneous charges. We have also written about how it can be expensive to take out a credit card from a department store when an account from a major bank will do instead, such as a Visa or Mastercard. But sometimes, such accounts can have their benefits.
It isn’t uncommon to be checking out at your favorite department store and have the cashier point out that a discount on your purchase is possible if you apply for the store’s credit card. The discount might be nice, but applying means a check or your credit, and too many credit checks can lower your credit score. Plus, the interest rates aren’t as low as for other cards; they average five to six points higher than for a major bank card. Given these negatives, why might it be worthwhile to open such an account?
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The following reasons all help:
- Establishing credit - Department store accounts are often easier to obtain than major bank cards. If you are young and trying to establish credit, a department store card may be a good place to start. You can make a small purchase each month, pay your bill on time, and in a year or so you will have a solid record of financial responsibility.
- The instant discount may be worth it - Applying for credit to get a 10% discount on a pair of jeans is probably not a good idea. But what if you are buying a whole house full of furniture? What if you are buying a whole kitchen full of appliances? In that case, when the discount can amount to several hundred dollars, applying for store accounts may make good sense. This is particularly true if you plan to shop there regularly in the future.
- Other discounts - Some stores send information about special sales or discounts only to their own credit card holders. If you are a regular customer, you may save again in the future by getting your name on their mailing list.
There may be benefits to obtaining credit from department stores, but you need to be sure to watch out for the places where they can cost you money. The interest rates on such accounts are higher, the default interest rate for late payments may be higher and the card cannot be used anywhere else. Keep these things in mind before you apply.
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