We’ve all been through this scenario before; you’re at one of your favorite retailers shopping for new clothes. You go to check out and the sales clerk asks if you have their store’s charge card? They explain to you that you can save 15% off of everything you’re buying today if you sign up. Sounds great! Who doesn’t want to save money? So you fill it out and go on your way.
The initial 15% savings is a good deal, there’s no arguing that, but in the long run you’ll see why it isn’t such a good deal after all.
Most everyone has some type of retail credit card. It’s a huge business, with retailers making a lot of money from it. But, having one of these credit cards has its share of issues.
1. The biggest concern with retail store credit cards is the high interest rates. It’s a fact, retail store charge cards have interest rates from 20%-30%. Compare this to bank credit cards which average 10%-15%.
If you are like most people and carry a balance on you card each month, you can do the math and see what it means. That 15% savings you got on your first purchase is going to get eaten up quickly. Not only that, but you’re then going to pay a lot of interest charges that you don’t need to be paying.
2. A retail store credit card can actually have a negative effect on your credit score. Credit bureaus use a specific formula in calculating your credit score. They calculate retail charge cards differently than bank cards such as Visa and MasterCard, etc.
By having several of these retail cards in addition to your other bank credit cards; it can actually make you a bigger risk to the credit bureaus and lower your credit score. Having too many different credit cards has a negative effect on your credit.
3. You may be thinking that yes, I have several of these retail store charge cards, but I don’t use them. While that may be fine, having open accounts, with or without a balance, can still be a negative in the eyes of the credit bureaus.
4. Retail stores will often take your personal information and share it with other third party companies. Why? They make money from it. Other companies will buy lists from retailers like Wal-Mart, and then send you all sorts of offers in the mail and to your email address if you provided one.
While some people may not be bothered by this, others have grown tired of receiving spam on their computer, or having their mailboxes flooded with junk mail.
So, before signing up for that next retail store credit card, consider whether you really need it and if the savings is really worth it in the long run.