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THINGS TO KNOW BEFORE APPLYING FOR A STORE CREDIT CARD

HOW THE REWARDS AND RATES COULD SWAY YOUR PURCHASES

With the holidays right around the corner, many shoppers are beginning to flood stores and retail websites. To tempt these shoppers to buy more or exclusively shop at their store, many brands and retailers offer special perks as an incentive when shoppers sign up for a store credit card. While it might be enticing to receive a deal, there are a few things you should carefully consider before applying.
  

STORE CREDIT CARDS CAN IMPACT YOUR CREDIT SCORE
Just like other lines of credit, a store credit card can impact your credit score. If you use your card responsibly by paying your bills on time and keeping balances low, the use of your store credit card may help you improve your credit history over time. If you haven’t qualified for a standard credit card, a store credit card might be a way to slowly boost your credit, permitting that the card remains in good standing.

Conversely, if you use your card irresponsibly, your credit score could be negatively impacted. Examples of irresponsible credit card use are missing payments or keeping too high of a credit card balance.
  

Card with Chips
  
RETAIL CREDIT CARDS TEND TO HAVE HIGHER INTEREST RATES THAN TRADITIONAL CREDIT CARDS
According to the Federal Reserve, the current average interest rate for a traditional credit card hovers around 16%. However, the average interest rate for a retail credit card is about 26% and could increase annually, according to Experian. So, if you apply for a retail credit card and carry a balance, you must prepare for the additional interest you’ll pay.

Additionally, many retailers state that they have 0% interest on their credit cards. However, unlike traditional credit cards with 0% interest introductory periods, store credit card interest-free offers may require users to pay the full amount of deferred interest if they carry a balance at the end of the introductory period.

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EVEN IF YOU HAVE BAD CREDIT, YOU MAY QUALIFY
Often, it’s easier to qualify for a retail credit card than a traditional credit card. Retailers may not have strict requirements for anyone who applies for a card. Therefore, if you need to build credit and don’t qualify for a traditional card, this is an option worth considering. Remember, if you want to build credit, you must keep your account in good standing.
  

Shopping
  
STORE CREDIT CARDS MAY HAVE MORE RESTRICTIONS
Many retail cards tend to have lower balance limits than traditional credit cards. If you keep a balance on your credit card, it may increase your credit utilization, which is one factor used to determine your credit score.

Your credit utilization ratio is determined by the amount of available credit on your open credit cards. If you have a high credit utilization rate, lenders may not allow you to borrow funds because it looks like you’re struggling to pay off your debt. It’s recommended to have a credit utilization ratio under 30%. Anything above 30% credit utilization may harm your credit score.

Additionally, it’s important to note that some store credit cards may have higher fees than traditional credit cards. These fees include transfer fees, cash advance fees, and penalties. 

Another restriction is that store credit cards may only allow you to use them in the retail store you got it from. So, if you regularly shop with one retailer or brand and pay your balance off every month, the perks may be reason enough to get a retail card. However, if you do most of your shopping elsewhere, then you should consider other options.
  

Store Credit Card during the Holidays
  
STORE CREDIT CARDS ENCOURAGE SPENDING
If you shop with a particular retailer or brand, store credit cards can offer rewards that may encourage you to spend more money than you would if you didn’t have the card. For example, you might sign up for the card because of a sign-up perk, but the ongoing cashback rewards, discounts, and other bonuses can keep encouraging you to spend money in the store. While these deals can help if you already need to purchase things from that store, these deals could encourage you to spend more than necessary.

  
THE BOTTOM LINE
Store credit cards often bring people in with a significant deal upfront. Some people love that they receive additional deals and discounts at their favorite stores. Others prefer to steer clear as they often have much higher interest rates than traditional credit cards. Regardless of which you choose, always be sure to do plenty of research before taking out a credit card and ensuring you stay in good standing.