“Would you like to save 15% today by opening up a store credit card?”
It’s Labor Day weekend — a big shopping weekend for many Americans — which means you might have to answer that question a lot. Retailers tend to have big sales for Labor Day, and you may be tempted to open a store credit card in order to save a little bit more, but that opportunity to save isn’t always worth it.
Store credit cards can be worthwhile if you’re a frequent shopper or making a large purchase at the store (most cards offer a sign-up discount), but this subset of the credit card market can have big drawbacks for consumers. Consider these things before letting a cashier run your credit to apply.
Opening a New Card Can Hurt Your Credit
Applying for a new loan or credit card results in a hard inquiry on your credit report, which tends to shave a few points off your credit score. Depending on where your credit sits and what your financial plans include, that may or may not be a big deal. For example, if you plan to buy a house in the next few months, a few credit score points could mean you get a higher interest rate on a mortgage, which can translate into thousands of dollars over your lifetime.
A new account will also lower the average age of your credit, which also has an impact on your credit score. At the same time, you will be increasing your available credit with the new card, so as long as you don’t also rack up a high balance on the card, the new account could help your credit. Take a look at your credit score before you apply for a new card — you can get your credit scores for free on Credit.com — and that information should help you decide whether you want to take on another account.
The Interest Rate Might Be High
Retail cards tend to carry higher interest rates than no-frills credit cards. That’s not a big deal if you intend to pay the balance in full, but if you carry a balance, the amount you pay in interest will almost certainly outweigh any discount you may have received for signing up in the first place, so store credit cards tend to be a better option for those who don’t plan on carrying a balance. Some cards have promotional 0% financing, which can make the store card a good strategy if you’re buying something expensive and want to spread out the payments, but make sure you understand the terms of that promotion before you agree to it. You may be better off opening a non-retail credit card with a more competitive 0% financing offer. For example, the winner of this year’s best balance transfer credit cards in America ranking is the Chase Slate, which offers 15 months of 0% financing. (You can read a full review of the Chase Slate here.)
You Could Get a Better Deal With Another Card
A card that offers you cash back or airline miles for your purchases, no matter where you make them, could add up to a lot of savings, if you’re strategic in how you redeem them. That being said, rewards cards also have high interest rates and need to be used carefully. Additionally, some store credit cards offer a card through the major credit card networks that allow you to use them at other retailers, so you can earn rewards without severely limiting your shopping options.
You May Be Tempted to Overspend
Regular shoppers can benefit from using a retailer’s credit card for their frequent purchases, but you need to consider the cost of loyalty. You might end up spending more on an item you could get cheaper elsewhere, just because you have the store credit card. Additionally, you may go shopping at the store more often, even when you don’t need to, because you feel tied to the retailer by the card in your wallet.
As with many great financial tools, you have to consider the costs and benefits before opening a new credit card, whether it’s from your bank or your favorite store. Take the time to think through the decision, so impulsivity doesn’t land you in debt.
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
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This article originally appeared on Credit.com.
This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.