It’s an effective strategy for the stores. In a survey commissioned earlier this year through Harris Interactive by Credit Karma, of the over 2,000 adults questioned, one out of every five people (21%) ended up opening at least one store credit card to get the discount offered. Nearly half of them (45%) didn’t consider the impact opening the store credit card might have on their credit score.
As Credit Karma founder Ken Lin noted, “Opening a store credit card can be beneficial if you regularly shop at that store. However, it can also negatively impact your future credit worthiness and your finances, which many Americans don’t think about. That’s when people get into trouble.”
Are these store credit card offers worth it? They can be, but only in specific circumstances. Here are a few things it’s important to remember if you’re offered a discount to apply for a store credit card:
- Pay in Full: If you can’t pay off the store credit card in full each month, it’s not a deal no matter how much of a discount the retailer offers. Store credit card interest rates are some of the highest out there, and any savings you received will quickly disappear to interest charges. There is a reason the store is offering you the discount to sign up for the card. They know that in the long run, they will make money off of people who apply for them, not lose money.
- It Will Affect Your Credit Score: Applying for a store credit card will affect your credit score. It can help long-term if you pay it off in full each month, but can hurt if you don’t. It might hurt your score short-term if you have recently applied for other credit as well.
- It Shouldn’t Be an Impulse Sign-Up: Just as impulse purchases can hurt your finances, impulse store card sign-ups can hurt them in the same way. Signing up for a new form of credit shouldn’t be done on the spur of the moment. It should be something that you spend some time considering and analyzing to make sure it’s the best financial move for you to make. If you haven’t though it through, it’s best to pass until you have a chance to think it through. The same offer will likely still be available the next time you shop if it turns out it’s something which might benefit your finances.