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This holiday season we are going to avoid taking out new store credit cards. And we think you should too.
Have you ever heard some form of this sales pitch before?:
“Would you like to apply for a (insert relevant store) credit card? You’ll save 10 percent on today’s purchase.”
Chances are that you have on multiple occasions. And you may have even thought about just abandoning your items at the cash register if the employee was persistent.
You’ll probably hear it again this holiday season. Which is why you should be ready to respond with an affirmative “No” to the employee.
Let’s take a look at why this is the case. And what some better options are.
Reasons to Avoid Store Credit Cards
Store credit cards are generally easier to get than those that are offered by banks and other financial institutions. You may even be approved right on the spot for such a card and they’ll often offer savings on your purchases.
So what’s not to like about this?
The cashier probably won’t tell you this, but the average store credit card carries an APR of 24 percent. That is 9 points higher than those found on traditional credit cards.
If you bite off more than you can chew this holiday season, the higher interest rate will give you a serious case of buyer’s remorse.
If you already have enough credit cards, you may think that 1 more won’t hurt. However, a hard inquiry will go on your credit report for every credit card that you apply for. This will negatively impact your credit score.
If you open a store credit card just to save a few dollars on your holiday shopping, that card will be on your credit report for 7 years. That’s a major downside if you get into trouble with the card.
Store credit cards tend to have lower credit limits than traditional credit cards. With this in mind, you’ll be more likely to max out your card. If you do this and cannot pay it off on time, this will become a red flag to future creditors. Thus, your interest rates on future debts will be higher than they would have been otherwise.
Instead of going with a store credit card, consider using a traditional card.
The rewards are generally more comprehensive and the interest rates are usually much lower. Also, you’ll have much more flexibility in terms of where you shop with a traditional credit card in many cases.
Just think about it – will that Joe Schmo’s credit card, with no major payment processor backing it up, do you any good at a local restaurant or if you are traveling in London?
Look for cards that offer strong cash back or other rewards this holiday season.
An example is the Chase Freedom Card, which offers 5 percent cash back in rotating categories, and a bonus cash back welcome offer and introductory interest rate to sweeten the deal.
Another options are the American Express Blue Cash Everyday or the Blue Cash Preferred cards. These card also offer bonus cash offers to new cardholders. Plus, each card also offers solid cash back rewards on each purchase, so it’s tough to go wrong with either of those.
The cashier who attempts to sign you up for a store credit card is probably motivated by a manager and/or potential commissions to do so.
Whatever the case may be, it is best to decline the offer. That 10 percent in savings is not worth the strings that are attached in most cases.
Go with a traditional credit card if you are in the market for a new credit card this holiday season, as you’ll probably find a much better deal by going that route.