Store Credit Cards: Must-Haves???

You are dying to get those hip knee-high boots and adorable pair of Jimmy Choo sling backs but are unsure if you can afford them.  You are thinking:  Do I buy now or do I wait for a bargain?  While you are mulling over this decision, a sales assistant approaches you and cheerfully informs you that you’re entitled to a 10% discount if you sign-up for their versatile credit card.  The application takes only minutes.

Should you or shouldn’t you?

Why Stores Offer Store Credit

Stores usually offer store credit cards because they want to build customer loyalty and keep track of their customers’ buying habits.  It’s a profitable business for them, too, due to the interest payments of store customers.  Furthermore, store credit cards save the stores money; when stores accommodate payments using other credit cards – say, Visa-MasterCard payments – they pay merchant fees.  Usually, such fees amount to 2% of every transaction, costing shops up to $26 billion yearly.  If they offer cards co-branded with Visa or MasterCard, they will save some money in fees, but they still have to pay some merchant fees.  But if they offer their own cards, they avoid the fees entirely.

Benefits of Store Credit

If you’re a frequent customer of a specific store, getting a credit card from this store is probably a good move.  It will put extra savings in your pockets as most store credit cards come with rewards of various sorts including cash rebates, sales price discounts and shopping points.  You must, however, inquire if the discount or reward is granted immediately, can be redeemed anytime or has no applicable restrictions and conditions and if there are strings to reward/discount redemption.  Answer all these questions before you decide to take up store credit offers.

Store credit accounts, moreover, sometimes have more lenient payment terms.  Some stores can also be more forgiving of late payments – or at the very least, may have lower late penalties and delinquency interest rates.  Thus, if most of your credit card purchases are for a specific store that has its own in-store credit program with lenient terms and low interest rates and penalties, then it would be practical to take up a credit offer from this store.

Owning a store credit card will likewise help you build credit.  If you spend on a budget and pay all of your bills religiously, a store credit card is definitely a good credit plus financial planning tool.

Drawbacks of Store Credit

Check the rules.  As with applying for any type of credit card or loan, you need to read the terms and conditions attached to the credit line or offer.  Take time to understand the clauses on default terms, fees, interest, and penalties.  High interest rates may await delinquent card holders so you should know how much you will be charged – and how you will be penalized – if ever you’re late on a payment.

A store credit card opens another avenue of credit.  Thus, it can make spending – or splurging – easy for one who tends to be financially irresponsible.  There is a high utilization percentage of store credit cards – even by the most modest shopper!

Furthermore, having three or more store cards open at one and the same time can put a dent in your credit score.  It will largely affect your debt-to-credit ratio.

After knowing the pros and cons of owning one, the ultimate decision lies in you.  Store credit cards are obviously assets to stores.  Don’t allow them to get all the benefits.  If you scratch their back, let them scratch yours!  Think twice!  Decide depending on your own financial and shopping habits.  Grab one if will it be an asset yet drop it if it will or if it has become a liability.

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