Retail Credit Cards

November 30, 2009

Credit cards can be helpful in many ways. They allow us to buy now and pay later, making it possible to buy things we couldn’t otherwise afford. They eliminate the need to carry large amounts of cash, and if they’re stolen the holder is responsible for little or none of the amount of unauthorized charges. And they make it easy to make purchases online or over the phone.

But credit cards can also get us in trouble. If we don’t pay the balance in full each month, we must pay interest charges until it’s all paid. It’s also too easy to keep building up a higher and higher balance, paying only the minimum payment until we’re in debt over our heads. And if we are late with a payment or go over our credit limit, we could be subjected to fees and interest rate increases.

Some consumers apply for store credit cards in an effort to avoid some of these problems. Store credit cards usually have a lower limit than regular credit cards, so you can’t run up an insanely high balance with them. And in most cases, they may only be used at one store or chain of stores, so there is less temptation to use them to buy anything and everything.

But what many store credit card holders do not realize is that these cards often cause even more trouble than regular credit cards. This is true for several reasons:

  • Store credit cards usually have higher interest rates than the average bank credit card. This is true even for customers who have excellent credit. Since store credit cards are generally easier to get than regular credit cards, they carry higher interest to make up for the higher default rate.
  • A store credit card could adversely affect your ability to obtain other credit. Many lenders consider store credit cards a sign of overspending or not being creditworthy. So they may decline the applicant or charge a higher interest rate.
  • Stores often make special offers to entice shoppers to apply for one of their cards. They may offer a percentage off your purchase if you’re accepted, or offer zero interest for a certain amount of time. These offers are very tempting, but if you accept you’ll eventually be subjected to the same high interest rates and fees as everyone else.
  • Having a credit card from a given store often encourages shoppers to spend more money there than they normally would. Merchants know this, and they frequently offer special deals to customers with their cards to further lure them in. If you’re not careful, you could end up maxing your card out in no time.
  • Even if you pay your balance in full each month, a store credit card could adversely affect your credit. In most cases, you’re better off just using a regular credit card (or better yet, cash). Even if you miss out on a deal or two, you’ll usually still save money in the long run by leaving store credit cards alone.

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