The Good, the Bad, the Ugly of Department Store Cards

It’s nearly impossible to go into a department store and not get asked the famous question “Will this be on your [name of store] credit card?” If you answer “No, I don’t have one”, that’s immediately followed by “Would you like to apply for one?  You get [such and such] off your total purchase.” You fill out the application and wham! You’re a card-carrying, lifelong, faithful customer of that store.  And many others like it. And you’ve got the bills to prove it.
Sound familiar?

It’s not unusual for consumers to have several department store credit cards—typically 2 or 3, but some folks have up to a dozen cards bearing their names.  This is all well and good if you can afford (and keep up with) the bill payments, but these store cards have their down side, too.  Before you agree to fill out one more application on your next trip to the mall, or are enticed by another free T-shirt or cruise drawing giveaway if you sign up, weigh the pros and cons of these cards first:

Pros

• Already a loyal customer? If you shop at the store often, it’s definitely worth your while to have a credit card with them.  This way, you can take advantage of special offers and discounts.

• Need to build or rebuild your credit? Store credit cards are a reliable way to help you establish a credit record or restore your good name if you’ve filed bankruptcy or your financial situation has gone belly-up.

• Do you pay your bills on time? If you’re good with paying the bills as they come in, then you shouldn’t have a problem with the ever-growing interest rates that tend to come with store credit cards.

• Are you making a major purchase? Since you’re already a card-carrying Loyal Customer, why not go for it?  Furniture, appliances, and jewelry are all big-ticket items that can land you a nice discount at the cash register.

• Do you want to upgrade to a major credit card? Establishing yourself as a good credit card citizen is key if you want to apply for a Visa or MasterCard at a later time.  Carrying a good credit history with your store credit cards is an important first step to getting approved with the major companies.

Cons

• Can you afford sky-high interest rates? The average store credit card carries an average interest rate of 21% to 33%.  That’s quite a hefty sum out of your regular paycheck if you fall behind on a payment or two.

• Do you have a sketchy credit history? If you’ve hit some financial rough spots in the past, you probably want to think twice before you stick more plastic in that wallet.  Nothing ruins your history faster than falling behind on payments, using your card exclusively (or almost exclusively) every time you make a purchase, or falling into harmful spending patterns.

• Do you overspend or buy things you don’t really need? Credit cards are basically loaded weapons for folks who use them to charge spontaneous and/or unnecessary purchases.  This is especially dangerous if you’re trying to rebuild your credit score, and doubly dangerous if this is how you got your low credit score in the first place.  If this sounds like you, you may actually want to see a professional who can help you figure out why you feel such an urge to buy things you don’t really want or need.

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This entry was posted on Wednesday, February 3rd, 2010 at 9:00 am and is filed under Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.