Next time a checkout clerk offers you an “opportunity” to sign up for a store credit card so that you can get an instant 10% discount on that pack of gum or box of tissues you’re buying, remember this: the price you’ll pay for that deal is an interest rate as high as 25%. And, yeah, you’re telling yourself that’s no big deal, since you’ll pay it off every month. But will you? And are you prepared for the other gotchas tied up in a bright ribbon by your friendly retailer?
Forbes points out that “the terms on these cards tend to resemble those offered to subprime borrowers, with interest rates as high as 25%.” Common wisdom has long been that store cards are a good way for young consumers to build a credit history. But they’re not even the best option for that limited purpose. According to Forbes, store cards can often hurt your credit rating:
You could also face taking a hit to your credit score if you get lured in by too many of these offers. Opening up new credit cards solely for the upfront bonuses can hurt your credit score in a few different ways:
- Since the cards have such low credit limits, and you’re making a big-ticket purchase to take advantage of the deals, your credit utilization ratio will go up
- Opening new accounts will reduce the average life of your credit accounts
- Opening new accounts also adds “recent credit inquiries” to your file, which will affect your score for the next year
Some examples of not-very-good deals include the Target Red card, which offers customers a 5% discount, and carries a 22.9% interest rate. Want 5% off at Target? Forbes suggests using a Chase card at the bank’s Ultimate Rewards Mall, where you can get a discount on purchases from Target.com and other retailers.