Are Store Credit Cards A Good Idea?

There are many stores nowadays that offer store credit cards. Most of the time, customers will be incentivized by the promise of great savings every time they shop andwhen they sign up for the card. Some stores might offer up to 20% savings for shopperssigning up for store credit cards. On face value, it looks like a great deal. After all, who wouldn’twant to save every time they go shopping? But there is more to a store credit card than meets the eye. Although it’s a great idea, it’s not always for everyone. Before signing up for any store credit card, you need to understand the pros and cons involved. In this article, we are going to break down everything for you.

What Are The Benefits Of A Store Credit Card?
A store credit card offers a number of key benefits. These benefits go beyond the promise of great savings every time you shop.

Start Building A Credit History
Having a good credit history makes it easier for you to get loans in the future. Using store credit cards can help you start building a strong credit history. Store credit cards are exclusive to the retailer that is offering them. This means that you can only use those cards to shop at stores owned by the retailer who issued the card.

However, the underwriting process of issuing store credit cards is a little bit lax compared to normal credit cards. This offers the perfect starting point for you to build your credit history. Creditworthiness is an important aspect ofyour financial profile and a big part of it will depend on the kind of credit history you have. The sooner you start building a credit history the better. A store credit card is a great choice for this particular goal.

RebuildYour Credit
Having a credit history is important, but not always. Some people have a bad credit history. A bad credit history is often associated with loan defaults and late loan repayments among other factors. If you have a bad credit history, your credit score will automatically be low. A low credit score makes it very hard for you to get approved for loans or even credit cards.

However, you can start rebuilding your credit score by taking a store credit card and using it wisely. The main reason why a store credit card is recommended here is based on the ease of access. Many retailers who offer these cards will likely approve requests even from people who have a low credit score. If you pay your bills on time and avoid maxing out the card, you will see some significant improvements in yourcredit score over time.

Great Shopping Perks
There are many perks you are likely toenjoy as an owner of a store credit card. For example, there is always a one-timesign-up discount that you will get for your shopping. The discount will apply to your total shopping value at the time ofsigning up for the card. The discount varies from one store to another. It’spossible to save up to 20% or more. Other than the discounts, there are also many other rewards including free shipping, bonus coupons etc. The rewardprogramsareuniqueand will depend on the different retailers that have issued the cards.Butnonetheless, they offer a great chance for shoppers to get more value for their money.

The Downsides of Having Store Credit Cards
Although from the pros listed above it looks so easy to jump on to the idea of getting a store credit card, there are a few challenges that you must be aware of.

Expensive Debt
The nature of a store credit card debt can be quite tricky because it’srelatively expensive. The Annual Percentage Rates for store credit cards are relatively higher compared to traditional credit cards. A survey that was done by showed that the Annual Percentage Rate (APR) for store credit cards in some of the largest US retailers stood at 24.99%. This is significantly higher compared to the average Annual Percentage Rates for variable-rate credit cards which stand at 16.7%.

In addition to this, most rewardprograms offered for store credit card owners are designed to lure them back into the store to spend more. For shoppers who lack fiscal discipline, it’s so easy to accumulate a huge bill at the end of theyear. Although it always seems like the store credit card is here to get you great savings everytime you shop, if it’s not used wisely,it’s very likely that you will end up paying way more for shopping over time.

Limited Use
You can only use store credit cards to shop in a limited number of stores. Unless they are co-branded, the cards will only be eligible in stores owned by the retailer issuing the cards. A co-branded card is basically issued in partnership between thestore and some of the leading credit card companies. It will often have the logo of the retailer and the logo of the credit card provider. The biggest challenge with a co-branded store credit card is that the underwriting standards are very tough. Getting the card is relatively harder compared to your ordinary store credit card.

Low Credit Card Limits
Storecreditcardswill come with very small credit limits. This can be problematic for your credit score,especially if you are one of those people who like to shop a lot. In order to ensure your credit score is not affected, experts often recommend that you keep your credit utilizationrate as low as possible. Thecreditutilizationrate should not exceed 30%. If you can get it lower, that would be even better.

So, what’s a credit utilization rate? Let’s take an example of a store credit card that has a credit limit of $300. This is essentially the debt that has been extended to you. If you were to maintain a 30% credit utilization rate for this card, your spending must not exceed $90. This is a very small amount and for a regular shopper, it’svery easy to go over and above it. This will affect your credit score.Some people in an attempt to try and keep the credit utilization rate low without affecting how they shop will open a bunch of store credit cards at the same time. This is not a good idea because it will affect your credit score.

Should You Use A Store Credit Card?
Having looked at all the pros and cons of store credit cards, should you actually use these cards? Well, this depends on a number of factors. In case you always carry a balance with you, then a low-interest rate credit card would be better compared to a store credit card. However, if you don’t carry a balance, then you can consider a store credit card.

In case you are loyal to a particular store, the card might be a great option for you. You need to also have a relatively better credit score even though the underwriting standards for the store credit cards are not that tough. You must also make sure that you know how to pay the bill. Avoid late payments as much as possible. Paying a credit card bill latemight cost your credit score up to 90 points.

Getting a store credit card has its own benefits and disadvantages. The decision to use the cards must be based on a clear understanding of the risks and rewards involved. The simple guide above should help you make the right call. However, remember that if the store credit card doesn’t work out for you, you can always cancel it whenever you want.

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