I think it’s time we get down to brass tacks in relation to store credit cards. Despite alluring points and reward programs, they are nearly always a bad idea. Truth be told, the only winner is very often the store.
Putting on my personal finance hat, an individual doesn’t normally need more than one credit card. Having a second credit card to segregate types of charges is acceptable but anything more is counterproductive. Below are several reseason why having a store credit card isn’t a good idea:
1. Interest rates are INSANE. In general, you shouldn’t buy what you can’t afford to pay in cash. Sometimes life happens or the impulse to shop becomes too great. You can be sure that interest payments will nullify most discount savings. In many cases, it’s better to pay full price than the cost of interest. That’s the store getting rewards, not you.
2. Your card credit report will be hit with a hard inquiry and your credit rating will take a ding. That’s another strike for you. Based on your credit score, each individual is allocated a certain amount of credit. Having more credit cards doesn’t necessarily give you more buying power. It’s better to have a higher spending limit on each card than have several cards with smaller limits. (We will get to why a little further down the list.)
3. Store cards can only be used in one establishment, which limits their purchasing power. Points and perks can be enticing but many general credit cards offer similar advantages. Travel rewards are usually a lot more valuable than store credit but even if you don’t want to travel, in many cases you can often favorably convert your points into store credits.
4. Store credit cards offer much lower credit limits than major credit cards, which means that even a small purchase can gobble up that line of credit. Ultimately that will impact your credit score negatively. Banks don’t like to see a high percentage of available credit being utilized. For instance, if the store gives you a $1500 credit limit and you spend $700 on shoes, that means you’ve used about half your available credit. That doesn’t report well. If you’re looking to buy a home or take on a line of credit you should be sure that you’re not using more than 10% off your allocated credit on any card at any time. Some big banks won’t even give you a credit if you have too many credit cards open– that’s even if your credit is in good standing.
5. The lure of spending to get more rewards can be overcoming. There are entire marketing strategies behind behavioral consumerism. Once you see those points racking up, it can be tempting to buy more merchandise only to accumulate more points. It’s a huge mind game that can get dangerous.