What You Should Know About Store Credit Cards

It might be tempting to open a store-only credit card, especially when you’re about to make a big purchase and retailers offer big discounts to open an account on the spot. The problem is, that card you may only use a few times per year might hurt your credit score enough to outweigh a 15% discount on a new suit. These problems will persist even if retailers are forced to verify customers’ income before issuing them cards.

The New York Times featured the potential pitfalls of store-brand credit cards, especially for consumers with little or damaged credit. The main problem? A new credit account will lower the average age of your credit accounts, lowering your score. Store cards also tend to have low limits–only a few hundred dollars–and a few purchases will use up much of your limit, hurting your credit utilization ratio and thus your credit score.

Oh, yeah, and that 0% financing thing requires careful attention.

There are other reasons to read the fine print before getting these cards. Some retailers offer promotions where you do not pay interest for a certain period, as long as you pay off the balance by the time the promotional period ends. But if you do not pay off the balance, you will owe interest on your average balance during the promotional period — but interest will accrue starting on the date you bought the item. So if you bought a $1,000 television and you have paid off $800 by the end of the promotional period, you will still owe interest on your average balance, dating back to the day you bought the TV.

The Lure of Store Credit Cards, and the Hook [New York Times]