Store Credit Cards Have Many Disadvantages

Do you make a habit of applying and using store credit cards? If so, you could be putting yourself at a disadvantage.

If you are like many of today’s American consumers, you probably have several store credit cards in your wallet or purse. Store credit cards can be a convenient thing to carry around with you, but what type of benefits do they provide? Do their benefits outweigh their disadvantages? Here are some things you should know about store credit cards before you decide to sign up for one.

• If you carry a large balance on your store credit cards, you could be hurting your credit score. A good portion of your score is based on how much credit you have available compared to the amount of debt you have. It is simply too tempting to run up your store credit card and have several of them maxed out. Your credit score can also drop by as much as 20 points each time you obtain a new store credit card.

• The offers are tempting, but they do not make up for the damage to your credit. Just because a store is offering 10 or 20 percent off your first purchase when you apply for a store credit card does not mean the offer is going to benefit you. If your credit score drops as a result of your store credit card, you may not qualify for low interest rates on other loans, such as a car or a mortgage. You may save 20 percent on that new drill, but you will end up paying thousands in interest if the store credit card means the difference between getting a five and six percent interest rate on your new mortgage.

• The versatility of a store credit card is also poor. Most of the time you can only use it at the store that issued the card. Most store credit cards are not “co-branded,” meaning they do not have the Visa or Mastercard logo on them so they are useless unless you are at the store that issued the card.

• High interest rates are also common with store credit cards. If you carry a balance, you could end up paying three or four times as much for that new pair of shoes than what the price tag says. Some store credit cards even have interest rates as high as 20 percent even for cardholders who have good credit. Why would you want to put yourself in this type of financial situation?

If you enjoy using credit cards, do not fall into the temptation of using a store credit card for your purchases. Regular credit cards typically have lower interest rates and they are more flexible as far as where you can use them and the credit limits. Resist the urge and you will find yourself in a better financial situation than if you have a wallet full of these types of credit cards.

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