Just Say “No” to Retail Store Credit Cards, by 720 Credit Score

It’s that time of year where I have to issue my big warning:
Steer clear of retail store credit cards!
From now until Christmas, you will likely spend a few days in shopping malls. And more than a few of the retail stores you visit are going to try to seduce you into applying for a retail store credit card.
“You’ll save 10 percent on today’s purchase by applying for a retail store credit card,” they will tell you.
You’ll hear it over and over. In fact, just about every major store has a promotion intended to lure people into signing up for a retail store credit card.
Retail store credit cards will hurt your credit score.
And they will hurt your wallet.
Let’s say that you go into Banana Republic to buy your mother-in-law a sweater. The cashier tells you that if you sign up for a Banana Republic Card, you will get a 15 percent discount on that day’s purchases.
Let’s do the math and see how this adds up …
Imagine that the sweater costs $55. This means you will save $8.25 if you sign up for a Banana Republic Card.
But consider all the different ways you might end up spending MORE money:

  1. You will have to pay interest on the sweater, assuming you do not pay the bill immediately. And you will also have to pay interest on all future purchases.
  2. And there will be future purchases. If you have a credit card, you will be more likely to engage in retail therapy, and you will be more likely to spend more money at the store. (In fact, this is why the stores want you to sign up for their credit cards. They know people who use credit cards end up spending more money than people who use debit cards or cash.)
  3. You might even spend more money that day. I should take advantage of this offer, you might think, piling a few more items in your shopping cart and thinking that you are “saving” money because of the 15 percent discount.
  4. You have added a credit inquiry to your credit report. Credit inquiries count for 10 percent of your credit score, so your score drops a few points. This will cost you money in the future as a lower credit score means you will have a higher interest rate on other credit cards, your home loan, or your car loan.

My point is this: The $8.25 “savings” ends up costing you a bundle.
Think of it this way: Why would retail stores promote these cards with discounts unless they know they can eventually make money off the retail store credit cards?
As always, be sure to leave a comment below, particularly if you successfully fight off a pushy sales clerk trying to get you to sign up for a retail store credit card!