One of the most annoying things about shopping is the incessant offering of a store credit card in exchange for a 10% - 15% discount on that day’s purchases. It may be tempting but retail store credit cards aren’t as great as the store clerks make them seem. Sure, there may be some perks with a particular store, but in the grand scheme of your credit history, they’re not very beneficial.
Store Credit Cards Have Low Credit Limits
Store credit cards typically start you out with a very low credit limit - somewhere between $100 to $500. Your purchases could easily put you at a higher
credit utilization than what's beneficial for your credit. Any credit utilization over 20% is too high. On a credit card with a $100 credit limit, that means you should never charge more than $20. In many stores, that’s barely a t-shirt.
Store Credit Cards Have High Interest Rates
Retail store credit cards nearly always have high interest rates. The rates are typically between 20% and 30% making revolving balances very costly. If you don’t plan to pay your balance before the end of the
grace period, you’ll face some hefty interest charges. You could end up paying double for your purchases than if you'd paid with cash.
Store Credit Cards Have Little Impact on Credit Scores
Compared to a major credit cards, retail store credit cards have less impact on your
credit score. Sure, a positive payment history will help improve your credit score, but the credit cards simply don’t have as much influence on your credit score as other credit cards. That's just the way the credit score developers designed it.
Store Credit Cards Have Limited Usage
There’s only one thing you can do with a retail store credit card – use it in that store. If your tire blows out and you need to pay for towing, your store credit card won’t help you. When you need to book plane tickets for summer vacation, your store credit card is useless.Store Credit Cards Encourage High Credit Utilization
Store credit cards can negatively influence your credit score. Just the act of applying for the credit card will put a small debt in your credit score. That’s because credit inquiries made when you apply for credit count 10% of your credit score. Because store credit cards encourage high utilization, your credit score will drop more the closer your balance gets to your credit limit.Store Credit Cards Encourage Debt
Store credit cards like to encourage you to spend. You’ll notice that as you charge more on your credit card, your issuer will raise your credit limit giving you room to make additional charges. If you’re not disciplined with your credit card charges, you could easily find yourself with an uncontrollable balance. Follow the rule of charging only
what you can afford no matter how high your credit limit rises.
