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Store Credit Cards - Good or Bad?
It's inevitable. Almost every time you stand in line to check out at a department store, the cashier seems to pitch you their store's credit card. Sometimes they try to lure you in by telling you that you will be approved instantly, or that you get a discount on whatever it is you are purchasing at the moment. Such an offer can seem innocuous enough, but if you are not careful such a simple thing can be damaging to your credit history, even if you never intend to use the card. However, depending on your personal credit history and situation, store credit cards can be either good or bad.
Store Credit Cards - The Bad News
Here's the bad news about store credit cards. They typically have a very high APR or annual percentage rate - usually somewhere between 20 and 30 percent - and likewise offer credit limits that are much lower than traditional credit cards. It is much too easy to max out a credit card that only has a $400 or $500 credit limit than one with a line of credit in the thousands. Credit utilization, or the ratio of available credit to credit used, is a large part of your FICO score calculation. In this way, spending $400 on a card that has a credit limit of $500 shows a dangerously high credit utilization ratio, whereas the same $400 on a card with a $3,000 limit is a negligible expenditure.
Further bad news for a store credit card is that they often charge exorbitant fees. Say the card has an application fee of $150, and an available credit line of $300. As soon as you sign up for the card, the fees are assessed, and you have already used up 50% of your available limit - a high ratio in most cases - without even making a purchase.
Store Credit Cards - The Good News
Although store credit cards have many serious drawbacks, for certain people, they may be a viable, and indeed, one of the only available options. For those with poor or damaged credit; for students or others with no credit history at all, a store credit card can be a good stepping stone to greater credit freedom. Firstly, it is much easier to obtain a store credit card than it is a bank-issued card. Many stores will approve anyone at least 18 years old who makes a reasonable salary (usually around $12,000 a year), and has a checking account.
Someone who is looking to establish or re-establish good credit, could use a store card responsibly - by paying off the balance each month, and using very little of the available credit. Most store credit cards regularly report to the major credit bureaus, and with an improved credit score, you will soon be able to obtain an unsecured credit card with much better terms than the store credit cards offer.
About the Author:
Paul Basco Provides Expert opinions and reviews to help you Compare and Apply for a Credit Card Offers online. At GettintingaCreditCard.com, we offer low interest credit cards, 0% balance transfer credit cards, cash back rewards credit cards and much more.
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