We’ve all been there: You take your items to the department store counter and, while ringing them up, the clerk asks if you would like to save 25% off of today’s purchase by signing up for their credit card. It may seem like a good idea at the time. You save on your current purchase, they may offer coupons or other incentives, and you were going to pay cash for these items any way…why not just get them at a discount and pay it off ASAP?
If only it were always that easy. The fact is that a new line of credit is rarely something you should decide on in the time it takes a skilled professional to fold a couple of shirts. Before accepting a retail credit line, consider how this instrument could harm your credit.
First and foremost, the interest rates on retail credit cards tend to average somewhere around 25%, while most variable rate cards are closer to 18%. It isn’t hard to see how easily you could wind up paying more in interest than you saved on the introductory offer.
Credit utilization rate is a factor that goes into determining your credit rating. The general principle is that responsible credit users tend to only access less than 30% of the credit available to themselves at a given time. Most retail credit cards only offer limits in the hundreds, and if you have a $300 credit line, it's pretty easy to utilize over 30% of it. This overutilization can hurt your credit rating, particularly if you are relying on retail cards to help you build or reestablish credit.
Any time you apply for a new card, the lender will pull your credit report to see if you qualify for the loan. Applying for a new card is known as a hard inquiry, and they can affect your credit score for an entire year. It can be particularly damaging to those working on establishing or repairing their credit. Think twice before you even apply.
If you are thinking about getting a retail credit card because of the benefits offered to you, do your homework. Often the provided benefits are not worth the elevated interest rate or the activity to your credit rating. If benefits are your game, you can likely do better with a points-rich general credit card. Sure, some retail cards are great for some people but be sure you know what they are and be comfortable that they will actually benefit you.
Retail credit cards can be great, in certain situations particularly if you are fastidious about paying your balance every month. Also, their more relaxed standards can make them a great tool for those working to establish or reestablish their credit. However, remember that every point on your credit score counts. Do your research before you get to the checkout counter, and choose your cards with care.
When you're ready to start working with a credit repair service in Dallas you might have some questions about how to pick the right service for you. Download our free guide to finding the best credit repair service in Dallas for help!