Guard Your Cards

Know the ins and outs of store credit cards to avoid expensive mistakes.
 

Avoid the "savings" temptation.

Saving 10% on a $200 purchase can be some real savings but over time it is not a savings at all. If you only make the minimum monthly payment, it may take months, or even years, to pay off that purchase. Finance charges can eat up the initial savings you received and even more. In addition, there may be other costly credit card fees, such as the late payment fee, that can put you further into debt.

Walk away from high-interest rates.

Store credit cards have a reputation for charging high-interest rates, considerably higher than banks or credit unions. The interest rates of these credit cards are not as competitive as you may be led to believe. Rates can reach as high as 20% Annual Percentage Rate (APR). If you need to use credit for your purchase, it makes more sense to use a credit card that you already frequently use and from a financial institution, you trust.

Protect your credit score.

Opening store credit cards can affect your credit score. Many of life's aspects are dependent on maintaining a strong credit history: financing your car and home, and even your child's education, etc. High credit balances and opening too many credit card accounts in a short period of time—especially during the tempting holiday season—can negatively affect your credit score. Open credit accounts you intend to use and that you are financially able to handle given your current income. Remember, it takes years of solid credit management to obtain and keep an excellent credit report and credit score.

Asking is part of the job.

Not only does the salesperson want you to spend money, but they also want you to open a credit card account. It's most likely part of his or her job to offer—especially on higher-priced items where your savings can be substantial. Keep in mind the salesperson may be compensated for the accounts they open, so don't let their enthusiasm or insistence sway you in any way. They prey on hasty consumers and read body language for cues such as uncertainty and nervousness and manipulate these traits until the account is opened. Remember, you pay for the purchase—they don't—so decline their offer.

The rewards aren't free.

Many major store credit cards have added rewards to keep loyal store card customers coming back for more. But don't let the promise of discounts, exclusive offers, and rewards lull you into agreeing to a lousy card deal. Again, there's nothing rewarding about having your money sucked away by high-interest rates, so don't be enticed.

Choose before you shop.

Before heading out to shop, decide how you will pay for your purchase. Whether it be cash, check, debit card, credit card, or even a rewards card, plan ahead and stick to your budget. Keep focused to avoid having regrets later.

Be a thoughtful consumer.

Impulsiveness can lead you into financial difficulties that can last a lifetime. When you hear ads for companies helping consumers with tens of thousands in credit card debt, remember this: their debt began somewhere. Choose wisely.