Saturday: From the Archives....Do You Need A Wallet Full of Plastic?

From: Sunday, March 29, 2009

Store credit cards are wonderful!

Why?
   

• You earn juicy rates of interest.
• Card holders are more likely to shop with you.
• Store cards provide a steady revenue stream without the expenses of manufacturing, advertising, , employees, shipping....

Of course, all this is only true if "you" are the store.

For those who use them, as opposed to those who issue them, store credit cards make no sense whatsoever
.
I don't know how many times I've been asked by a sales clerk if I want a store credit card. I try to be polite, but once, when I walked through a newly opened store and got pounced on, one after another, by six people all shrieking the same pitch ("Sign up for our card and you can save 10% on your first purchase!") I finally got tired of saying "No, thank you" and asked Pouncer #6 the following questions:

"Doesn't this store accept VISA or Mastercard?"
"Well....yes.""
"Then if I want to use a credit card, I can use one of those?"
"Well...yes"
"How much is the interest rate on your card?"
A few moments of checking the application, then:
"16%."
"Does it make sense for me to pay 16% interest on everything I buy with your card in order to get a one-time 10% discount?"
"Uh.....I suppose not...."

Store credit cards are worse than useless, they're actually, IMHO, toxic. First, they encourage you to shop in a specific store, even if that store isn't offering the best values. My friend Jenny, (not her real name) for example, only shops for clothes at Penney's because that's where she has a credit card. Sales or great deals elsewhere? Too bad. All her Christmas and birthday gifts for other people? Bought at Penney's. I have nothing against Penney's, but who wants to be stuck with only one option?

Second, a wallet full of store credit cards means a lot of applications on your credit report, plus many open lines of credit. Both can be a red flag to potential lenders, since they represent additional credit you can use....or misuse. (Even if you've only charged $500 on a $5,000 credit card, lenders know you could spend that extra $4,500 tomorrow....and that's a count against you.)

Third, store cards tend to charge higher rates of interest. Carry a balance equal to your initial "10% discount" purchase for a year and you'll likely end up paying much more in interest than you saved

Fourth....well, with more bills to keep track off each month, you're more likely to miss a payment and that can really hurt your credit score. Besides, who wants all that paperwork?

There's almost literally no place in the world that won't accept either VISA or MasterCard. Don't take the bait of a one-time discount on a card with a high interest rate. Keep your wallet slim, your bill-paying simple and your shopping options flexible. Carry one each of the two major cards and you'll have at least one card that will work in any store, just two bills to pay, and a cleaner, better credit report.

But don't forget....you pay no interest at all when you buy with cash.