Best Buy: Giving credit... where credit is due

Best Buy has snapped up Circuit City's list of store cardholders and welcomed them to the fold. If you're on the list of cardholders who were invited to swap, Dan Ray, editor-in-chief of, which wrote about the switcheroo, says take the new card and be grateful.

If you didn't get the invitation -- or if you decline to switch, and shut down your card -- chances are you'll take a punch to the ol' FICO score.

You say you never use that card anyway? That's part of the game, Ray says: FICO wants you to use 30% or less of your available credit. Having a store credit card or two in your wallet means you have available credit. When you or the credit-card issuer shuts a card down, your credit ratio changes. Having fewer credit cards means having less credit available, so your debt becomes a higher percentage of your available credit. And that reduces your score. Yes, they get you coming and going.

If you're a Circuit City cardholder who's already near your credit limit, refusing a Best Buy card -- or never getting their offer in the first place -- will hurt your credit the most. But these days, even customers with strong credit should be concerned, Ray says: "Credit-card issuers are running around with axes these days, looking for any excuse to cut people's credit."

The demise of Circuit City could be good for Best Buy. The Wall Street Journal (subscription required) says analysts expect Best Buy to pick up at least half of Circuit City's customers. But doing so means Best Buy has to fight off a far bigger dog, Wal-Mart/Sam's Club. Buying up the debt of proven Circuit City customers, as Best Buy did when it acquired Circuit City's cardholder list, was a clever strategy for sorting the wheat from the chaff and wooing them with offers.

Best Buy's fourth quarter report, released in late March, confirms what every retailer under the sun already knows: business was lousy over the holiday season. Part of Best Buy's plan to overcome recession-driven sales declines and get the best of Wal-Mart is to get into the mobile-phone business, where profit margins are better.

My strategic advice to Circuit City -- and now Best Buy -- cardholders: keep the company honest. Make it play its own game. Hang onto your card, but keep it clean and pristine. And the next time Best Buy announces a deal -- especially a deal on mobile phones -- study up on what it and the competition are offering. And don't buy anything unless the price is right.
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