Imagine a successful shopping trip in which you have scored amazing deals, found the perfect gift for your discerning friend and even managed to get something special for yourself. As you proceed to the checkout counter, the store associate dangles in front of you the benefits of applying for an in-store credit card. You stop cold and wonder if opening a store credit card is a smart move or a regrettable impulse buy. The answer largely depends on how you use it.
When a store associate asks if you want to open a card with the store, they typically quote an exact percentage you’ll save on the day’s purchase. The added savings can make this offer all the more tantalizing, especially if you’re buying a good deal of merchandise or spending a lot of money. As a credit card-holder, you might also be privy to exclusive discounts on future purchases and be granted access to exclusive shopping events.
Getting a retail store card is particularly useful if you are looking to build good credit history. Jeanine Skowronski, credit card analyst for Bankrate, writes that “retail store card issuers are more likely to approve people with lower credit scores, making this a great way to build your credit — just as long as you don’t carry a balance.”
If you routinely make small purchases at a shop that you would be able to pay off almost immediately, and if you are not carrying too many active credit cards as it is, having a retail credit card can be quite beneficial.
With opening up a new credit card comes the inherent risk of your credit score taking a hit. NerdWallet’s Tony Armstrong recommends minimizing your risk by researching the benefits of a particular retail store card before applying for it, taking as long as six months to consider whether it is the right choice for you. Be sure to read the terms and conditions, paying particular attention to the possibility of an annual fee and what annual percentage rate (APR) you can expect to pay once any promotion involving interest rates has expired.
As Skowronski notes, retail credit cards tend to be less appealing than other options because they carry higher APRs and lower lending thresholds. This is not likely to become a problem if you are making small purchases and paying them off quickly, but it can become a major issue for both your finances and your credit score if you carry a balance.
“If you tend to carry a balance, you should shop around for a low-interest credit card instead,” says Skowronski. “If you shop a lot at one particular retailer, aren’t prone to carrying a balance and have a credit score that can handle a new inquiry, the [retail] card could prove worthwhile.
Determining whether a retail credit card is right for you is a matter of your individual spending habits and financial needs. The choice of whether to say yes or no to the friendly cashier offering you a credit card is ultimately yours to make, but it is a decision best made after careful consideration.