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Things were simpler back when Mom and Dad were grocery shopping at the IGA and the rest of the shopping was done at the local JC Penney department store. In 1958, JC Penney came out with the first store credit account, known back then as a “charge account”. Mom and Dad were enticed by the free toaster and the unique concept of buying now and paying later. The terms of those first “charge accounts” were simpler as well. Now, the store cards abound but the terms are no longer as simple.
Now a day you almost cannot go shop at a retail outlet where the cashier does not try to entice you to apply for their store card with a promise of and extra 15-20% off. Now, savvy shoppers can apply for the card, use the discount and then pay off the card before they get hit with any extra charges and throw it in a drawer until it benefits them to use it again. You know, the extra charges they do not have to time to tell you about while you wait in line with three people behind you all wanting to check out and get out.
First, let us talk to that savvy shopper. This is not a shop-a-holic, but a spendthrift and already knows how the system works. They will hit that store during a seasonal clearance where everything is already 25-75% off, stock up on Christmas and other gift items as well as a few tidbits for themselves, swagger up to the checkout, wait for the store card offer and whamo! Get another 15-20% off on top of the already discounted items and proudly walk out with a bag or two of REAL steals! Unfortunately, not all of us can be that savvy, in fact MOST of us are not that savvy.
So, for us, back to reality.
Even those with the most borderline credit can usually be approved for a store card. The store cards normally have very low credit limits and therefore they are not taking as big a risk so they can offer the credit to the less creditworthy.
Most store cards come with some kind of special incentives to keep you (1) shopping at their store instead of somewhere else; and (2) keep you using their card instead of paying cash. These incentives can include percentages off, cash back, low or no interest for a set amount of time, merchandise gifts and more. They may even allow you to purchase large ticket items that are above and beyond your credit limit where they can administer a payment plan option through the card without touching your available balance.
Since store cards are almost always offered and applied for at the consumer’s “home” location it may give the feeling of belonging to a family. They can use the card at the store where they shop the most, where the sale peoples and cashiers may know them by name and treat them special.
So far so good, right?
This is where they get you. Just remember, there’s almost always a catch. The majority of store and credit cardholders carry a balance. Store cards’ interest charges can start in the double digits and only go up from there. The late fees are more, over the limit fees are more and they may even charge you a fee to close the account.
Not only that, but also every store card gives you an open line of credit on your credit report that all add up to being overextended even though you may hardly ever use the cards. This will keep you from being approved for a good low interest credit card that will do you a whole lot more good in the long run. Eventually you are buried under a pile of high-interest store card debt! Debt that could have been avoided with that all too simple and hardest word to say “No.” Just say no.
Credit card companies such as Capital One make it easier to get approved even with limited credit. There are even reasonably low interest credit cards like Discover Motiva that reward you for good credit maintenance and an abundance of credit card reward programs that more than make up for that initial interest off (or free toaster) for applying for a store card ploy.
If you want to feel like family, draw a cute smiley face on your invoice when you send your payment and make the payment processor smile. Store cards can be a good way to build initial credit but after a year, trade them all in for a good low-interest, no annual fee card that gives you a good long-term rate or zero interest rate on balance transfers so you can consolidate and pay-off. Kind of the opposite of “divide and conquer” but achieving the same results. Success!