September 19, 2017
 
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Top 5 Reasons to Avoid Store Credit Cards

It’s not rocket science or even algebra. Stores aim at making money and you are their target.  “Why me?” you ask.  Because you make money and they want it.  Now of course they won’t come out and say that, but you don’t have to read between the lines to realize it either.

Store marketing campaigns are designed to make you feel like they are there for you, to save you money, to make you happy.  And, while they may in many ways accomplish this, just remember, stores are in the business of making money - a lot of money!  So, play the game, but don’t play into their hands!  

One of the key ways a store profits off its customers is through their credit card. Stores don’t offer credit cards for your convenience; they offer them because it makes them more money.  

So what are the Top 5 Reasons to Avoid them?  

1. High Interest Rates

The average credit card interest rate is approximately 15%, whereas a store credit card is easily 20% or more. For example, Wal-Mart and Target are both 22.90%, Macy’s is 24.50%, and JcPenney’s credit card has a whopping 26.99% interest rate!  

2. Low Credit Limits

There isn’t much bang for your buck here...The average shopper receives a store credit limit of $1000, but many receive much less. The problem with purchasing on cards with low credit limits is that it increases your credit utilization, which is basically the ratio of how much credit you have used up compared to the total you have available. For example, if you have a credit card with $500 and you spend $50, your credit utilization will remain fairly low. However, if you spend $450 on that same card, your credit utilization will be high because you’ve used up most of the available credit.

3. Lowers Credit Score

Opening a new card will decrease your credit age. Credit age is the age of your oldest account and the average age of all your accounts. Wondering why that matters? This figure is 15% of your credit rating and a lower age equals a lower score.

Other factors lower your credit score, too. What are they?

History of Payment 35%

How Much You Owe 30% (Credit utilization comes into play here.)

New Credit Inquiries 10%

Credit Type 10%

4. Increased Spending

Having a store card only increases the likelihood that you will lean on it for purchases. This leaning can lead to more and more spending. If your goal is to cut spending, increase savings, and build a strong financial future, then set yourself up for success by steering clear of the temptation.

5. A Reactive Decision

Most people don’t go into a store with the purpose of getting a credit card. In some cases, store credit has been considered prior to a large purchase, but store credit cards are more often a last minute decision at the checkout register. The sales clerk sells you on the idea of saving 10% now, which stores know will pay off later in those additional lean on card purchases.

A strong financial mindset involves knowing where you are headed and how you will get there. This focus allows you make proactive decisions rather than being reactive to a sales pitch.

So there you have it - The Top 5 Reasons to Avoid Store Credit Cards.  The next time a store clerk offers you that small discount at the register, remember this simple advice and choose wisely!

 

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