What’s in your wallet? If you’re
like many consumers, among the cards that you don’t
leave home without are store credit cards for places
like Sears, BestBuy, Circuit City, Bloomingdales,
WalMart, Target or even your local jeweler. In these
days when it’s easy for many people to get
general use credit cards, do you really need all
those store credit cards? In fact – are they
doing you any good at all?
According to most consumer credit experts, the
answer is an unequivocal and resounding NO. Take
a look at some cold, hard cash facts to help you
decide for yourself whether it’s worth hanging
onto all your store and private brand credit cards.
The APR on store credit cards is usually
significantly higher than it is on general
use credit cards like MasterCard, Visa or Discover.
In fact, you could be paying 20-21% in
interest charges when the average for a
general use card is less than 10%. How does that
stack up?
Purchase: $799 computer with $75
extended warranty (payment term: 9 months)
Card 1: HSBC MasterCard Platinum
at 9.9% APR
9 Monthly Payments: 104.32
Total: $938.88
Total finance charge: $64.89
Card 2: Store Credit Card: 90
days same as cash – 20.4% APR (variable)
9 Monthly Payments: 111.97
Total: $1007.73
Total Finance Charge: $133.73
You pay $68.84 more for the computer
if you buy it on the store credit card than if you
put it on your MasterCard in this scenario.
But what about discounts if you apply for store
credit and use it today? That MAY be worth it for
you – if the discount is on a big ticket item
that you were planning to finance anyway AND you
can pay it off quickly. Take the scenario above
– a 10% discount on that purchase would have
taken the price down low enough that it would be
worth it to apply for the card and put it on the
new store credit card. Even better a deal if you
can pay off your purchase within three months. In
fact, if you can pay off your outstanding balances
on that particular card within three months EVERY
TIME, then it’s a store card worth having
because…
Having a lot of credit cards with outstanding
balances can hurt your credit.
So if you have a lot of credit cards with balances
on them, it can lower your credit rating as much
as 3-12 points per card. On the other hand, if those
cards show a record of prompt payments and low or
no balances, then you’re establishing a history
of responsible credit card use – and that
pushes your credit score up in a major way.
Also, applying for many credit cards can
hurt your credit score.
Every time that you apply for a new credit card,
the credit inquiry goes on your credit record. It
can continue to affect your credit score for up
to 2 years. Don’t just jump at a credit card
application because the store offers you a free
gift, or a discount on your store purchases today
unless you actually plan to use the credit card
to make purchases in the future. In the long run,
it could cost you thousands of dollars in a higher
interest rate if you apply for a larger loan –
say a house mortgage – in the next two years.
