Retail cards: Save 20 percent now for the chance to pay more later

By , CardRatings Contributor
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The sign calls to me every time I go grocery shopping: Apply now! Save an additional 10 percent!

Amazon reminds me every time I make a purchase that I could be saving $30 (!) if only I would sign up for their rewards credit card.

And it doesn't matter if I am in Sears, JC Penney or Kohl's, every department store clerk seems trained to ask if I would like to save an additional 15 or 20 or whatever percent by signing up for their store card.

Store branded credit cards are everywhere and with the holiday shopping season in full swing, there is no doubt you will be faced with plenty of temptation to sign up for one or more cards in exchange for a few more dollars off.

Store credit cards: Why not save more?

Early in my adult life, I decided there wasn't a store credit card I didn't love. Save 20 percent? Absolutely! The application process was easy, and I always planned to pay off the purchase and never use the card again. Why would I want to turn down that discount?

In reality, the $15 I was saving at the time of purchase was quickly offset by the late fees I would pay because I missed the due date on a new account or the interest I was charged because the credit card enticed me to buy just a little more than I could afford. Now, being older and wiser, I make it my personal policy to just say no to any and all store card offers.

Of course, even if you are not organizationally challenged and almost always pay off your balance each month, there are good reasons to think twice about opening a store card. Consider the following drawbacks:

  • Higher interest rates: As of this writing, a Sears Card charges an annual interest rate of 25.24 percent. Compare that to the best credit cards which often offer zero interest introductory periods and then standard annual interest rates as low as 10.99 percent.
  • Lower credit scores: If you pay off your balance every month, you may not be too concerned about the interest rate on store credit cards. However, opening many new accounts can cause your credit score to dip temporarily. If you are planning a major purchase in the near future, you may not want to risk lowering your score which can result in less favorable terms for an auto loan or mortgage.
  • Limited credit potential: Store cards typically offer lower limits than other credit cards. In addition, the use of some cards may be restricted only to the issuing store. With the multiple cards having the potential to affect your credit score and impact your ability to take advantage of better credit card offers, you may want to reconsider applying for a store card with less than ideal terms and a low limit.

Stick with a multipurpose reward credit card

Instead of chasing down deals by applying for every store credit card you encounter, a better strategy may be to look for one good, general purpose reward credit card. Many cash back cards offer up to 5 percent back on select categories year round. Many also have a low introductory rates and other perks.

Sure, you are not getting that one time 10-20 percent savings, but you can save year long with the right cash back credit card without risking a drop in your credit score or paying exorbitant interest rates.

So what are you going to say the next time the clerk asks you if you'd like to save an additional 20 percent today?

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