Would you like to apply for a [fill in blank] store credit card and save an additional 20% on your purchase today? – JUST SAY NO!
All credit cards were not created equally. There are good credit cards for earning rewards, bad cards for earning rewards, and horrible cards for earning rewards. Store issued credit cards have a tendency to be in the third category. At CreditShout, we get a ton of questions about store credit cards and all of the problems that go along with them. If you ever find yourself applying for one of these cards, here are some things to beware of:
Always Avoid Signing Up At Checkout
Ever wonder why that employee at JCPenney was so determined to get you to apply for their store card? Many times store employees earn a commission for each new account they open. If a store offers multiple cards, an employee may attempt to open up multiple accounts under your name to maximize their commission. This process can damage your credit score and leave you with open accounts you aren’t even aware of! This shady practice is enough to deter me from ever opening up a credit account during checkout.
Note: If for some reason you do need to open up a store credit card account, ALWAYS apply online through the retailers secure website.
Beware of Deceptive 0% Financing Offers
Sign up for a [fill in the blank] store credit card and pay no interest on today’s purchase for an entire year!
Retailers will often market their credit cards by offering a very attractive interest\-free introductory period also known as a 0% intro APR. Whenever you apply for a new credit cards, it’s extremely important to always read the fine print:
“Interest will be charged to your account from the purchase date if the purchase balance is not paid in full within 12 months or if you make a late payment.”
One thing people often fail to realize with these offers is that if you fail to pay off your full balance within the introductory period you will then be required to pay backdated interest, usually at a ridiculously high APR.
Let’s say you bought a new 50″ LCD TV for $2000 from Bestbuy and opened up a new account for the Best Buy store credit card offering no interest on purchases for 12 months. A year later you realize that you haven’t paid off the account yet and submit the payment in full a day late. At a 25% interest rate, you are now on the hook for around $500 in interest!
This is how the card companies make money with store cards – they are essentially betting on the fact that you won’t pay your balance off before the intro period is over and will owe a massive amount of interest on your purchases.
There are a few exceptions to this, but as a rule of thumb, I tell people to just say no at the checkout counter to new store rewards cards. If you really think you’ve found a good deal, always do your research before applying!