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Store Credit Cards: A Good Decision or Pitfall?

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You’ve probably heard financial experts saying that store credit cards are nothing but trouble. However, this massive business is still going strong, so there are many individuals still seeking them out and using them. So, are store credit cards all bad, or are there reasons why a store credit card might be right for you?

Store credit cards are often discredited by financial experts because of their sky-high interest rates. However, if you are a financially responsible credit card user, they may very well provide you with some benefits.

The Lure of Discounts and Rewards

Stores will often reward customers with frequent discounts and rewards for using their store credit cards. This, of course, can prove to be quite beneficial, particularly for retailers you frequent. However, it is important to understand that if you fail to pay your card in full each month you could very well lose all of the advantages of discounts and coupons due to finance charges.

One of the downsides to store credit cards, besides their high interest rates, is that many individuals tend to spend more at their favorite retailer when they come armed with a store credit card. In fact, retailers are counting on it.

If you find yourself purchasing more than you normally would if you were paying cash, or if you find that you are not using good judgment when it comes to purchasing items that are too expensive for your budget, then you should reconsider using a store credit card.

Controlling your Spending and Keeping your Spending Habits in Check

Many times, store credit cards give us the false impression of having more money. Many individuals, armed with a store credit card, will shop to excess. High store credit card balances, of course, lead to credit problems, particularly if they are unable to pay off the balance in full each month.

Like any other type of financial tool, it is best to examine your credit card spending habits before agreeing to open a store credit card. If you are confident that you can pay off your balance, each month, in full, then it may be a good idea to use a store credit card, particularly one that comes with discounts, rewards or other shopping perks.

Are Retailer Credit Card Rewards Worthy of Your Interest?

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You know the holidays are upon us when retailers begin pulling out all the stops with their credit cards. Great deals for opening a retail credit card; great deals for using your retail credit card; and special bonuses, coupons and shopping events for being a cardholder are just a few of the things that retailers use to entice us into using a retail credit card.

However, are retail credit cards all they are really cracked up to be?

You may find it all a bit too tempting when you go to make a purchase and a store associate tells you that you can open a store credit card within minutes and save as much as 20 percent on your purchase. This is usually the time when you must make a decision regarding the advantages and disadvantages of owning a retail credit card.

Weighing a Discount vs. a High Interest Rate

If you know, unequivocally, that you will pay off your credit card purchase when your first statement comes then it may be worth your while to open a retail credit card account. However, if you even have the smallest inkling that you may not be able to pay the balance in full then you are probably better off passing on using a store credit card.

This is because retail credit cards come with notoriously high interest rates. In other words, any discount that you may have received for opening a new account will likely be erased the first time you are unable to pay your bill in full.

Too Much Temptation

Another factor to consider is your spending habits. Many times, individuals armed with retail credit cards are likely to spend more than if they were using another form of payment.

You may find yourself making more frequent purchases, purchasing more expensive items or simply purchasing more than you otherwise would have if you were paying with cash, for example.

Consider your Credit Score

Although a nice payment history on a store credit card may bode well for your credit score, missing even one payment may have a strong impact on your credit score, in a negative way. Plus, retail credit cards have lower credit limits, which may just not make much sense when you have a perfectly good major credit card with a low, fixed interest rate.

Retail Credit Cards: Should you Take the Bait?

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We’ve all been there before: we walk through a store, spot an item that we feel we absolutely “must have,” then get lured in by a sales associate promising us a retail credit card in an instant, complete with an incentive. The question is: should we take the bait, or should we remain hesitant when it comes to retail credit cards?

Retail credit cards certainly have their share of advantages and disadvantages, so what might be right for one consumer may not be right for another.

Let’s compare the two:

Advantages of Retail Credit Cards

• Instant approval – There is nothing like being able to purchase items from your favorite retailer when they are able to approve you in just minutes.
• Instant discount – Many retailers offer customers additional incentives for applying for instant store credit by discounting the day’s purchases.
• Future coupons/discounts – Many retailers, in an attempt to lure their customers back into the store send them coupons in the mail, usually along with their statement.
• Special promotions/events for card holders – Another ploy of retailers to get their credit card holders back into the store is to offer card holder-only promotions and events.

Disadvantages of Retail Credit Cards

• High interest rates – It is important to realize that, along with the convenience, comes high interest rates. Over-the-limit fees and late-payment fees for retail credit cards can be quite high, as well.
• More credit – do you need it? – The real question when deciding upon a retail credit card is, “Do I really need another credit card?” For many consumers, a standard credit card with a low interest rate may be a much better option than opening yet another credit account.
• Impulse buys/overspending – Perhaps the biggest reason that many consumers avoid retail credit cards is that they often encourage impulse buying and overspending, Sometimes it is all a bit too tempting to walk into a retailer and buy more than we need, simply because we come armed with our store credit card. Consider whether you can make responsible purchases with a retail credit card before applying for one.