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Credit Cards - Store Credit Cards: Holiday Blessing Or Hidden Curse?

Mar 19, 2008
It's no secret that the holiday season can create sort of a "feeding frenzy" mentality when it comes to spending, especially with credit cards. Retailers know this, and so many of them are more than happy to help out - or so it seems - by offering you the chance to apply for their store credit card. I mean, who wouldn't want to save 15% off the day's purchase? Sounds like a great move, right?

Well, not so fast!

The thing is that store credit cards often carry an unusually high interest rate. In fact, it's not uncommon for store credit cards to come with interest rates as high as 25%. It's ironic, because at that point, the "discount" you get from using the card gets effectively eaten by the higher rate.

Another danger of applying for store credit cards is that just the act of applying for one requires the store to look at your credit report. And as you may know, each time this happens, and inquiry is posted to your credit file. This can potentially be a problem if you're looking to purchase a car or a house down the line, because excessive credit inquiries can lower your credit score.

Let's say for example, you're in the habit of paying all your bills on time (an excellent habit to start, by the way), and you have no existing debts, and so you have a median credit score of 730. This is considered quite a good credit score, and generally would ensure that you'll be approved for loans, as well as receive optimum rates for things like mortgages.

However, let's say you decide to do some holiday shopping for the family. Because of the attractive 10 percent or more discount the stores are offering you as you pay for your purchase, you decide to sign up for the store credit cards at various stores you visit. Unfortunately, each application means an additional inquiry into your credit file, and ends up lowering your median credit store to 680 (these are made up numbers I'm using to illustrate my point, by the way). That's a fifty point difference, which can be a huge deal in the eyes of lenders. And that's on top of paying the higher interest rates on the store credit card itself.

But don't panic. Just remember to ask a few questions before signing up. The next time you're offered a store credit card, find out what the interest rate is, then weigh that against the discount you're getting on your purchase, as well as the problems that an additional inquiry into your credit report can cause for your credit score. You might be better off just skipping the store card and paying cash, or using a student credit card instead.
About the Author
Keith Adams is based in New York City and writes about credit, finance and other topics. You can read more credit articles on his blog, http://creditcardsforcollegekids.blogspot.com
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