While doing your holiday shopping, you’ll notice the signs that read “apply for a store credit card and receive 25% off your entire purchase.” It sounds like a no-brainer, especially on major holiday purchases. But it is important to remember that there are consequences from opening these credit cards and you should take the time to consider whether or not it’s a good decision for you personally. Remember these three key drawbacks before opening that new store card.
- Higher Interest Rates – Retail credit cards tend to carry higher interest rates than those issued by Banks. For example, the average rate on cash back credit card is about 16% while a Wal-Mart credit card charges 23% interest. If you tend to carry a balance, these financing charges will cost you more in the long run.
- Credit Score Impact – Opening new credit cards can impact your credit score. Other factors in your profile will determine the exact impact but it could knock off as much as 25 points of your score! Retail credit cards also are likely to have lower spending limits. This is important because the closer your balance is to the limit, the more your credit score will suffer.
- Spending Temptation – When opening a new retail credit card, the store will most likely send cardholders special deals and discounts throughout the year. It is great if you are a regular customer, but the loads of offers may prompt you to spend more than you would otherwise. Make sure you stay within your budget to avoid these temptations!
Have you ever opened a store credit card? We would love to hear your story. Please comment below!