5 Things to Know Before Signing Up for a Store Credit Card

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By Susan Johnston

If you're hitting the mall this holiday season, it's likely the cashier in at least one store will cheerfully ask if you want to apply for a store credit card and save 5 percent, 10 percent or, in some cases, 20 percent on your purchase.

"They're very tempting and easy to get because they're often marketed at the point of sale," says Ben Woolsey, director of marketing and consumer research at creditcards.com. "It's like junk food. It's very easy and compelling to get these cards, but if you get too many of them, it will degrade your credit."

Here's what you should know before applying for a store credit card.

1. Store credit cards often carry higher interest rates. The average credit card interest rate is about 15 percent, but many retail credit cards charge interest rates of 20 percent or more. If you pay off your balance in full each month, a high APR may not faze you. But if there's any chance of carrying a balance, you might want to think twice before signing up, says Anisha Sekar, vice president of credit and debt at the personal finance website nerdwallet.com.

2. Inquiries can impact your credit score. Each time you apply for credit, whether it's with a department store or a major credit card issuer, it can temporarily ding your credit score. Although the impact of each inquiry is typically five points or less, "you just don't want to be opening a bunch of new accounts if you're in the market for a major loan," says Liz Weston, personal finance columnist and author of the book "Your Credit Score." "If you're in the market for an auto loan or a mortgage, you don't want to lose a single point."

Applying for too many credit cards within a short time frame makes you look like a bigger credit risk, so don't apply for a credit card at every place you buy holiday gifts. Store cards often carry a low credit limit, so if you spend a lot, you'll have a high credit utilization ratio -- your balance versus your total available credit -- which can also lower your score.

3. Store credit cards aren't accepted everywhere. Most store credit cards report activity to all three credit bureaus, but they often aren't as widely accepted at retailers compared to regular cards and usually have lower limits, making them harder to use as a credit-building tool. %VIRTUAL-article-sponsoredlinks%"If it were me and I were going to add another credit card, I'd want to be able to use it in more than one place," Weston says. Plus, if you don't use the credit card every month, it's easy to forget about paying your bill or checking the statement for errors. However, store cards with a major credit card logo may be accepted by other merchants, and stores that are part of a larger corporation may allow you to use your card at sister stores.

4. You might be better off with a general rewards credit card. When you choose a card that you can only swipe with one retailer, it means that card only earns rewards from one retailer, Sekar says. "There are so many cards out there that will give you pretty stellar rewards on a much broader base of retailers," she says. Some retailers give ongoing discounts to cardholders, but others offer only a one-time discount when you first open the card.

5. Some store credit cards do come with perks. If you're loyal to a certain brand and that brand has especially good incentives for opening a card, it might be worth considering a store credit card. "Sometimes they'll give 20 percent off your next purchase or give you additional bonuses," Sekar says. "Or there are flash deals where you get an additional 10 percent off that day, only available to cardholders. Sometimes they'll throw in free shipping." However, if you're not disciplined, all these perks can entice you to spend more than you intended, which is why retailers offer them in the first place. "Know yourself and don't trick yourself into thinking you're saving money by spending more money," Sekar says. "As great as the credit card rewards might be, keep a limit on your spending."

If you open a store credit card this holiday season, limit yourself to one or two at the most, and stay on top of the bills. "As with regular credit cards, the most important thing is to always pay your bill on time," Woolsey says. "Before adding a new store credit card, it might be worth looking in your purse or wallet if you have any you can get rid of."


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5 Things to Know Before Signing Up for a Store Credit Card
Check your credit reports and correct errors. Of course, you want to make sure that everything is being accurately reported, from your current address to your closed accounts. (For more guidance on how to dispute an error on your credit report, look to this guide from the Federal Trade Commission.)

But you also want to check the details about what is being reported about your current accounts. For example, it can make a big difference to your score if your credit limit for a card is understated. Imagine that you owe $5,000 and your limit is $15,000. That means you owe 33 percent of your limit. If your credit limit is incorrectly listed as $8,000, though, it will look like you've borrowed 63 percent of your limit.
When you fix errors or take actions that should boost your score, make sure that all three of the main credit-reporting agencies (Equifax, Experian and TransUnion) know about it. By law, you can get a free copy of your credit report from each of them once a year -- do so, in order to spot errors and find other score-boosting opportunities.
One gambit few people think of is simply asking for what you want. In order to help you pay down your debt more quickly, you might ask your lender to lower your interest rate. If the lender refuses, see if you can find a lower-rate card and transfer the debt.

If you've got one or two glaring late payments on your credit record, you might ask your lender if they could be erased, in what's called a "goodwill deletion." Lenders are likely to be especially responsive to their best customers. And if you're dealing with a collection agency over some debt, see whether they'll delete it from your record if you pay it off. That can be well worth it.
If you're planning on closing some of your accounts, think twice. It's often a sensible thing to do to simplify your financial life, but closing an account can actually ding your credit score. One reason is that it actually reduces your available credit. Oddly enough, a host of seemingly sensible moves can hurt you -- such as using just one card for most of your charges. Even if you prefer using a newer card, keep older accounts open and use them occasionally to keep them active. Over time, that will give you a longer history and help improve that part of the credit score calculation.
Opening multiple accounts in a short period of time may boost your available credit, but it sends the wrong message to potential creditors, as it makes you look desperate to get credit from any available source.
Here's a valuable tip for anyone selling a home for less than they owe on it: What you're looking at is called a "short sale," and if you end up owing many thousands of dollars to your mortgage lender, you might get it in writing before the sale closes that the debt won't go on your record. Ending up with a big balance owed can be a black mark on your record, reportedly as costly as a foreclosure.

If a high credit score is important to you -- and for most of us it should be -- always consider how your financial actions will affect your score. For more information on credit scores, be sure to look at this guide from myFICO.com, which is the consumer division of the company that is responsible for the popular FICO credit score.
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