Store credit cards are enticing, but not always the best choice

We've all done it. While standing at a major retailer's register with an armload of purchases you are pitched an irresistible deal – sign up for the store's credit card and you can get an instant 10 percent discount on your purchase. And, if you are spending a sizable amount of money at someplace like the GAP, the idea of getting $20 or $30 off your purchase is pretty hard to resist.

But it probably is not such a good idea on many levels. First, ask yourself, "Do I really need another credit card?" If the answer is no or even maybe, then it's probably best to politely decline the offer. Merely having too many of these credit inquiries on your credit report can wreak havoc with your credit score. Some experts have opined that each store card a person opens lowers the customer's credit score by 20 points, and the credit inquiries alone can shave off 5 points. Whether it's that damaging is a matter of conjecture, but it definitely is harmful to some degree if done too often.

Going beyond mere credit inquiries is the effect of having multiple, approved store credit cards in your wallet. The net effect can be quite detrimental. These types of store credit cards provide a way to run amok with purchasing power in very tempting environments whose sole purpose is to get you to spend, spend, spend. And, once you've racked up some serious balances, you will realize these credit cards carry some serious interest rates – typically 50 percent higher than general use credit cards like Visa and MasterCard.

Unlike general use credit cards, store credit cards can only be used with the retailer that issues the card and therefore have much less utility than cards issued by Visa, MasterCard, Discover or American Express.

Even if you never plan to use a store credit card and simply desire to earn the upfront 10 percent discount, it's probably a bad idea. By having additional lines of credit open on your credit report you will look inherently more risky to lenders. This type of "risk potential" can trigger all kinds of unpleasant consequences, like universal default pricing on your other credit card accounts. But how can that happen, even without carrying a balance or being late with a payment, you ask? Most cardholder agreements provide the bank issuers with the ability to impose penalty default pricing for almost any reason – even the hint of increased credit risk.

Bottom line, store credit cards may look like great deals on the surface. But rest assured, they are mostly a great deal for the retailer rather than the consumer. Store credit cards drive increased sales, loyalty and profits for retailers, who have realized there is as much money to be made in selling credit as there is in selling their main retail items.

Before signing up for that new store card at the checkout counter, consider your financial needs. If you truly need additional credit, you should shop around for a low interest rate credit card – even one that offers 0 percent introductory APR. And if it's rewards that you seek, consider one of the many compelling offers available from Chase, Citi, American Express or Discover Card. All of these issuers provide credit cards that allow consumers to earn a full 5 percent cash back on everyday items at grocery stores, drugstores and gasoline stations and 1 percent on all other purchases. And, these cards can be used at millions of location worldwide. When you stop and think, it's not difficult to see how general purpose credit cards offer greater value and utility than their private-label store card brethren.

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Updated: 01-16-2019