Many times when at checkout at a retail store, we will be offered a chance to apply for that store’s own line of credit, often offering an immediate discount on the day’s purchase. Many people see credit as a handout and take it whenever it is given to them, but this sort of behavior can lead to serious consequences later down the road. For anyone who is serious about keeping their finances under control and avoiding a financial meltdown, staying away from these dangerous retail credit cards is a must. Here are some of the main reasons why you should abstain from in-store credit lines.
Higher Interest Rates
We all know how high some interest rates on credit cards can be, but it can be much worse with retail credit cards. A good interest rate on a retail credit card may be 20-30%, which is a rate normally reserved for people with bad credit in the traditional credit card market. Any discount that you may have gained by using this card is more than canceled out shortly thereafter unless you manage to pay your bill in full each month. If that’s the case, though, then why not use a regular credit card for these transactions?
Unreasonable Minimum Payments
While this may sound like a good thing, it is not: retail store credit cards have shockingly low monthly minimum payments. Why would a store do this? Mainly so that they can make as much money off of you as possible. They know that many people will use the card excessively and only pay the monthly minimum. As this process continues, the high interest rates will keep you in a pattern of perpetual debt to the retail store over even the simplest of purchases.
Unflattering to Your Credit
It is not well-known that retail store credit cards – and the act of simply applying for them – can impact your credit score. If you are constantly being offered a new credit card and constantly applying for each respective card, this will lower your credit score. Not only is applying for lines of credit in rapid succession bad for your score, but applying for retail cards, which are known to be a risky venture, will make the situation even worse.
When To Use Them
If there are huge rewards being offered and you have the cash to pay off the balance immediately, then you may consider picking up the occasional retail store card for responsible use. Always read the terms and conditions to figure out whether or not you can pay off the balance before interest in accrued (some cards will not let you do this) and if so, proceed to pay off your balance promptly. Also remember not to apply for every card that is offered, but only ones that you really can justify using. Savings are only savings if they’re not compounded with interest.