The Details Behind Store Charge Cards

“Do you want to save 10% on your purchase today?”

Whenever you hear this greeting from a store cashier, you know it really means, “Do you want to open a store credit card?” Before you answer that question, here are several things to consider:

Opening a new credit card puts a hard inquiry on your credit report. The credit reporting agencies look at hard inquiries unfavorably and immediately dock your credit score. How much your credit score is docked depends on your overall credit history, how higher your credit score is and how many inquiries you have on our report. In general, the more inquiries you have, the more your credit score will be penalized per inquiry. According to myFico.com, “people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports.”

Store charge cards typically have high interest rates. Before filling out a store credit card application, check the interest rate. Private-label cards or store cards that can only be used at one store, typical charge a flat interest rate of around 20%, regardless of your credit rating. If you don’t pay off the balance quickly enough, the finance charges on the card can offset the upfront savings you got from opening the account.

Most store credit cards have low limits. Many store charge cards will only offer a few thousand dollars worth of credit or less. On one hand, this can keep you from running up a super high balance, but on the other, it can negatively affect your credit. Carrying a balance of more than 30% of your available credit on one card can pull your credit score down. For example, if you only have a $1,000 credit limit on a card, carrying a balance of more than $300 can hurt your credit rating.