Pros and Cons of Store Credit Cards

You are at the
department store, shopping for shoes. You find a pair of black pumps that will
go with the dress you bought last week. The price? Two hundred dollars. You’re
not sure you’re ready to pay that much because you’re trying to save money. You
take the shoes to the clerk to ask if the price can get any lower. She smiles
and says that if you open a store credit card account the store will take off
ten percent. That brings the price down to $180. Plus, you pay nothing until
the bill arrives in a month. You think that the deal is a no-brainer and you
open the charge account and buy the shoes.

Sounds good, doesn’t
it? But there can be big drawbacks to having store credit cards.

Having too many store
credit cards can actually lower your credit rating. Each time you open a store
credit card, up to 20 points are taken off of your credit score. Why? Department stores typically issue credit cards to anyone with a home
address. They issue credit cards to people who otherwise are not creditworthy.
Ironically, having lots of store credit cards can make you look like a poor
credit risk.

There’s no harm in
opening accounts at a few stores that you shop frequently. Many store credit
cards give their customers coupons, bonus points, and preview information on
upcoming sales. Just don’t load up on cards for one-time purchases. Open the
account, pay the bill promptly, and then close the account.

If you must have
credit cards, obtain bank cards or co-branded retail cards that are issued with
Visa or MasterCard. These are rated higher in credit scores.

You also need to read
the fine print closely on store credit card offers. Balances incured as part of
no-interest/no-payment offers must be paid off by the time the deal expires or
you may be charged back interest.

Store cards tend to
have higher interest rates. Retailers want you to pay your card down so you
will buy more, so they may require that more of the balance be paid off each
month as compared to a bank card. On the plus side, if you are late with a
store card payment you may be treated more leniently than if you are late with
a bank card payment.

Some retailers offer
enticing rewards programs to customers who use their storecards. Neiman Marcus and Bergdorf
Goodman cardholders are invited to join InCircle, the stores’ customer
recognition program. Customers earn points with every purchase; a point is
roughly equal to each dollar spent. Reach 5,000 points and you are eligible to
redeem your points for various gifts, vacations, and gift cards. Keep spending
and when you reach 100,000 points you get promoted to the Platinum InCircle.
Spend your way to 1,500,000 points and you are ushered into the Chairman’s
Circle. Rewards include a 12-day Mediterranean cruise or a three-night stay at
a resort in Hawaii. Not enough? At five million points you get a two-night
Mediterranean cruise for up to 32 guests aboard the refitted M/Y CHRISTINA O
super-yacht, originally owned by Aristotle Onassis.

Next time you open a
store account to charge a pair of shoes, think about the pros and consthey
may surprise you.