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Experts Warn Against Store Credit Cards

[Wednesday, November 30th, 2016]

It’s the season for buying and receiving gifts, getting together with family, and making memories. But that’s not all people do during the holiday. Recent research from credit bureau TransUnion shows that this is also the season for signing up for store credit cards.

If you’ve been shopping recently, you’ve probably been asked if you’d like to sign up for a store credit card when you bring your items to the register. It’s hard to resist when you’re offered anywhere from 10 to 20 percent off your first purchase, just for signing up for the store credit card. However, don’t be fooled into thinking that it’s as simple as signing up for a customer loyalty card, which is another thing altogether.

When you sign up for a store credit card, you’re actually applying for a line of credit, which means a hard inquiry will be made to the credit bureau, to find out if your credit history is up to snuff. If you have too many cards already, or too much debt, or are behind on your credit card payments, you could be turned down for that new store credit card, and also lose out on that discount.

However, these cards are often easy to get, even for folks with poor or limited credit. This isn’t necessarily good news, however, as the terms on these cards are often not the best.

Store credit card signups are up, along with spending

TransUnion reports that the number of consumers with store credit card accounts has risen from 123.7 million in December 2014 to 125.3 million in the third quarter of 2016. Financial planner Sophia Bera told Business Insider that although the discounts can be tempting, it’s not the best idea to sign up for store credit cards.

When you sign up for a store credit card, you are also put on a list to get sales notices and coupons in the mail, and by email too. So you are constantly being encouraged to shop more often. Any savings may end up being cancelled out by the extra money you are likely to spend. The bottom line? “There are better ways to save or make $100 than using a store credit card,” according to Bera.

Another thing to watch out for with store credit cards is the high interest rates they typically charge. With APRs as high as 27%, you won’t want to pay the minimum and carry a balance from one month to the next.

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