Sunday, June 15, 2008

Store Credit Cards

This is part seven in a series on Credit Card Education.

Part 1: General Credit Card Information
Part 2: Credit Reports and Scores Explained
Part 3: Building Your Credit - Your First Credit Card
Part 4: Fixing Your Credit – Tips And Tricks
Part 5: Where To Check Your Credit Reports And Scores
Part 6: Amex Financial Review
Part 7: Store Credit Cards
Part 8: Churning Credit Cards - Tips and Tricks

Part 9: Credit Cards With Great Signup Bonuses

Future topics in this series will include: churning credit cards and which credit cards to get for different purposes.

Store Credit Cards
Many stores try to convince customers to open their credit card. They usually offer signup bonuses like 10% off your purchases that day and extra discounts whenever you use the card in that store in the future. Some stores offer way less then that. Here is what Walmart was offering as a sign-up bonus... (A bottle of soda!)

Sounds great? Not necessarily.

Some negative points about store credit cards:

1. With a store credit card, you will have a harder time disputing charges then you would if you were using an Amex (or even Visa and MasterCard).
2. Store Credit cards usually come with a high APR. (APR is the interest rate if you don’t pay in full every month) Shouldn’t really be a problem though, because hopefully you pay your bills in full every month!
3. It’s not worth it to open up a credit card just to save $25!
If you want the cash, you can open other cards which will give you $50+ cash, as a signup bonus. E.g. Chase Freedom Card
4. If you open lots of credit cards to earn miles (churning), then opening a store credit card isn’t necessarily a great idea. Opening a credit card affects your credit score in the short term. I try and make sure I get around $200 worth of miles/points/cash for each card I open. (I consider each mile to be worth at least one penny.)

One great thing about store credit cards:
They are usually way easier to get, so it’s a great way for someone with no credit history to start building credit. Read Part Three for more on that.

Bottom line:
Think twice before being convinced to open that store credit card.
If it’s a store that you shop at often, and there are nice discounts for card holders, then it might be worth it for you. I would recommend making a basic calculation: if the credit card won't save you at least $100 during the first year, don't get it. If it will, then consider it.

Stay tuned for next post Churning Credit Cards

2 comments:

Anonymous said...

For someone with too many cards, is it better to close-down/cancel some of those credit cards, or would it be better to just not youse em???

Shmuly said...

Generally speaking it is best not to cancel credit cards, as doing so will lower your total available credit.

Also, if you're talking about old cards, then canceling them will shorten the average age of your cards. (It won't affect your score for another 7 years though, until the card falls off your report.)

The only time I would recommend canceling a no annual fee card is if your total available credit on all your cards is extremely high and your don't write a high income on your credit card applications. Or if you have more then 20 cards, then canceling some might be a good idea.

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