Should You Get a Store Credit Card?

Should You Get a Store Credit Card?

"Would you like to save 15 percent today?" It doesn't seem like a question many people would turn down. But, if the difference between saving 15 percent and not is opening a store credit card, you might want to think twice. Although store cards do have some perks, they can also be bad news for your credit. Before you rush to open a store credit card, consider what it will mean for your finances and what effect it will have on your credit score.

Store Credit Cards and Interest Rates

Although many retailers offer card holders a chance to save on their purchases, many also tend to charge higher than average interest rates on those cards. If you save 15 percent on your purchase, but end up paying an interest rate over 20 percent, you're not saving money at all.

Store credit cards tend to charge considerably higher rates of interest than non-branded cards. As Money pointed out, the average credit card interest rate is 15.22 percent. Meanwhile, the average store card rate is 23.84 percent. Store cards with the highest rates charge just under 30 percent.

Store Credit Cards and Your Credit

A store credit card can be either good news or bad news for your credit score. As Bankrate points out, it's usually easier for people with low credit or no credit to open a store card. If that's you, getting a store card and using it carefully can help you build up a credit history and boost your score. That means paying the card off in full each month and making sure not to put too much on it in relation to your credit limit. Many store cards have lower limits than the typical credit card, so it can be easy to max them out or to come pretty close to doing so.

How can a store card hurt your credit? Opening a new credit account can cause your score to take a temporary hit. Opening several store credit cards all at once, during a big day of shopping, for example, can have a bigger impact on your score. That impact might not matter so much in the long run, but it can get in the way of your goals if you are planning on applying for a mortgage or other major loan within the next year or so.

If you have difficulty paying down your credit card or charge too much on it, your credit score can suffer, too. Your credit utilization ratio makes up 30 percent of your FICO score. The lower it is, the better your score. If you open a store card with a $500 limit and spend $350 on it, it will increase your credit utilization ratio and drag down your score. Not making payments on time will also negatively affect your overall credit score.

A Few Perks of Store Credit Cards

There are ways to get the most out of store credit cards and have them help, not harm, you. If you get a card for a store that you shop at regularly, don't go overboard with your spending at that store, and commit to paying the balance of in full each month, the discounts and other benefits offered by the card might be worth it.

When it comes to getting a store card or not, the old adage "know thyself" comes in handy. If you've been responsible with your credit in the past, you can stand to benefit from opening a card at your favorite or most frequently shopped retailer. But if you're struggled with debt or credit in the past and are still struggling, a better option might be to open a secured credit card with your local credit union. You'll be able to build up your credit history, without the risk of falling deep into debt at your favorite retailer.