“Would you like to save 10% on your next purchase?”
How many times have I heard those words come from the nice lady at the register? My not so fond memories used to stem from the mall where the high end department stores wouldn’t let you go until you listened to their sales pitch. Not anymore. That question seems to be present in every store these days.
On the surface it sounds like a good deal, doesn’t it? Your strategy is simple: Sign up for the card, get the card, save 10% off of something large, pay it off with the money you were going to use anyway, cancel the card and there you go. You just successfully beat the big, bad retail giant!
Before you feel too confident about your plan, I have some bad news for you: It’s as old as the offer itself and not only are the stores aware of it, they’re counting on it. They’re counting on the one idea that gets some of us into trouble over and over again.
“I’ll fix it tomorrow.”
The old cliché, “life is full of good intentions”, is alive and well. In my life, I often say that I’ll eat better tomorrow, I’ll work out more tomorrow, I’ll run the errands and do the laundry tomorrow. In the financial world, the monologue goes something like this: I’ll pay with cash from now on, I’ll not buy anything that is labeled “a want” until I pay off my credit cards, and all this, I’ll start tomorrow!
But here’s what the retail stores know will REALLY happen, at least, for a percentage of customers: Sign up for the card, get the card, save 10% off of something large while also buying something else, come back tomorrow and buy something else, get the bill at the end of the month, realize you don’t have the money to pay all of it, pay the minimum, start adding the higher than normal interest, repeat the process next month.
Why Say “No” To Retail Credit Cards?
If you find yourself in this boat, then it’s best if you do say “no” to any retail credit card offers that come your way at the cash register or through your mail. Let me give you a few other facts that may discourage you from taking this deal:
1. The interest rate for retail credit cards is almost always higher than that of other credit cards. It’s often more than 20%!
2. When you fill out an application for credit, it goes on your credit report as a negative point. Sure, this is the side effect for applying for any type of loan; but in this case, store credit is one of those things that is relatively easier to access. After all, it’s right under your nose when you go shopping. Applying for too many of these is hazardous to your credit status.
3. Closing a card account doesn’t remove it from your credit report. It will be there for seven years.
4. Store credit cards don’t offer the same dispute rights. Using your Visa or other regular prime credit card gives you the right to dispute charges.
5. You can find better benefits by using a credit card with rewards. Using a card that’s geared to offering you rewards points may be a better deal, if you have a good handle on your card use.
6. Retail cards are a hassle to keep track of. I find that they pretty much just clutter up my wallet (and my financial set up). They’re not that convenient to use either, given that you’re limited to using them at specific stores.
The Benefits of Store Credit
In general, store or retail cards aren’t the best type of cards to own, especially due to their high interest rates. If you tend to fall into the debt trap easily, then this is not the kind of card you should be carrying. However, they have some advantages. For example, my own mother loves retail credit cards. She patronizes certain stores for their discounts as a loyal customer. While I’ve asked her about how these cards have served her, she’s assured me that she remains a satisfied customer who has been happy about the extra perks and discounts she’s received by using the card. Well, as long as you can keep tabs on these cards and are able to pay them off in full each month, then great! In such cases, these cards can work for you.
In addition, you can use such cards to build credit. Speaking of which, there are also other ways to build credit that may be much more effective for the general consumer. Secured credit cards have a more general use and have stricter requirements on your credit line. Here are a few choices:
Now, if you know yourself well enough and realize that you and credit don’t mix, then by all means, do away with this kind of plastic. For those who are not interested in establishing credit but like the convenience of using a card (rather than cash), then there’s the PerkStreet Financial debit card (you can sign up for an account here), which also offers cash back and other rewards.
In conclusion, store and retail credit cards have a market (yes, my mom falls in that market), but it’s not for everyone. When the nice salesperson at the next store you visit tells you that you need their card, don’t automatically sign on the dotted line. Give it some careful thought and your financial health will thank you.
Copyright © 2010 The Digerati Life. All Rights Reserved.
{ 9 comments… read them below or add one }
I have one store credit card that I use sparingly but it usually saves me 30%. Their coupons are only good when paying via the Kohl’s card. I then pay the bill off as soon as I get it.
Such a timely post! I never use/apply for store credit cards until last week. I went to buy diamond stud earings for The Wife at Macy’s – and it was 20% off a good amount of cash, I couldn’t turn it down.
But great review of pros and cons.
Great over view — Bucksome has the perfect solution. Get the discounts but pay it off every month!
I definitely try to avoid these at all costs because I would spend too much money!
The only store credit card I use is my Gap card. It’s good at Banana Republic, Old Navy, etc. and since I do a lot of shopping at Gap, the rewards do build up. Plus I always pay off the balance so no worries about the APR.
I’m sure they’re all different, but overall store credit cards seem like a bad idea. Rewards cards seem like they would save you more money. I didn’t realize that these cards stay on your credit history for so long!
Nice post. This post exposes the store cards for what they are–highway robbery! These cards are such a bad deal for the consumer because of their interest rate that we as consumers should demand major changes.
On the flip side, I agree with SVB, if you use store cards, at least pay them off in full each month to make them work for you financially. I have to admit that store cards are an option to build credit as well (and may be easier to get than major credit cards). If credit is what you are trying to build, go for a major credit card or pre-paid card first.
-ConsumerMiser
Credit has effectively destroyed a once great nation. It is a terrible thing that promotes self-destruction.
I love my Amazon.com rewards visa. I pay it off the day after the statement comes every month and I get 3% back on all of my purchases. I’ve never had a problem with credit and use the cards just for the rewards.