Yielding Wealth | Personal Finance

Store Credit Cards: A Bad Idea for Your Personal Finances

by miranda on May 22nd, 2008

I’m not overly fond of store credit cards. Every time I am asked “Would you like to save 10 percent on your purchase today?” at the check out line, I politely say, “No, thank you.”

Two things that I have seen lately have only served to deepen my dislike of store credit cards. Over at No Credit Needed, there is a great anecdote told about why stores like to push their credit cards:

Having worked in retail when I was in high school, I was familiar with that type of company policy. Apparently, her particular manager asks each CSR to get 2 credit applications, per week. I asked her what she thought about credit cards - in general. She cocked her head, slightly, and said - almost at a whisper -

“They tell us if we can get someone to sign up, and be approved, that we have guaranteed that that customer will shop at our store, on average, three times more often than they would have if they didn’t have a card with our store’s name on it.”

The other interesting thing I received was a press release from Consumer Reports and their ShopSmart publication. The press release focuses on an article that rates different store credit cards. Here is a quote from the press release:

“The promise to save immediately when you open a store credit card account is tempting, but big interest payments can easily exceed rewards,” said Lisa Lee Freeman, editor-in-chief, ShopSmart. “Store credit cards make sense only if you pay off your bill each month and only when the program fits your individual spending habits.

That is a very good point. No matter how good the discount may seem, store credit cards charge higher interest. And it is also worth noting that store credit cards are not viewed as favorably as those from major banks. When figuring your credit score, store credit cards fall somewhere above payday loan, but well below major bank cards. You can probably make them work, if you are responsible, but wouldn’t you rather use a better card that gave you better rewards?

Think three times before getting store credit cards. And if you are still tempted, just say no anyway.

image credit: sxc.hu

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POSTED IN: Credit, Interest rates, Money advice, Personal Finance