Financial Questions: Are Store Specific Credit Cards Good Ideas?

Pros and cons of opening a store-specific credit card.

It seems like every time you go into a store, you are offered a credit card at that store in exchange for a discount on your first purchase. Like many consumers, you may be tempted to open an account to use the discount; but will opening a store-specific credit card help or hurt you in the long run? Store-specific credit cards have a number of pros and cons that should be considered before opening a store-specific line of credit.

Store-specific credit cards have a number of advantages. The first is that they are relatively easy to acquire. Unless you have serious problems on your credit report, such as a bankruptcy or frequently missed payments, you should have little problem opening an account. Of course, there are the added bonuses that come with the card: extra coupons in the mail, free gifts with purchase, etc. For a college student just starting to establish a credit history, store-specific credit cards can be a great way to build a good credit score, if the card is used wisely (see below). The advantage for a college student is that store-specific cards can only be used at that store, and cannot be used for other "necessary" purchases like late-night pizza that can quickly add up. They are also a good way for people with previous credit trouble to re-establish a good credit history, so long as the card is used with care. Finally, store-specific cards can be a great way to finance large purchases, particularly if the card has an offer than has no interest for the first 6-12 months. So long as you save the money to pay off the card by the end of the trial period, you can save a lot of money by financing large purchases with a store credit card.

However, there are a number of drawbacks to store-specific credit cards that should be considered before opening an account. The first is the high interest rate that these cards often carry, usually 18.9-25.9%, compared to much lower rates for normal credit cards. Store-specific cards can also negatively affect your credit score. Your credit score will be negatively affected if you 1) have too many credit cards, 2) have a large number of cards with revolving balance (i.e., balances that are not paid off in full at the end of the month), 3) you apply for many cards at once, 4) you are unable to pay the credit card minimum payments each month, or 5) you are near or at the maximum credit limit for one or more of your credit cards. Just like normal credit cards, an inability to pay off the balance at the end of each month can add up to a mountain of interest payments over time that more than offset the initial discount of opening the account. This can be particularly hazardous to college students with limited income. The average college student graduates with $2700 in credit card debt, which is a large sum of money for a person who must now set up new living arrangements, often on a limited income.

If you are able to pay off the balance each month, and do not already carry more than three other credit cards, then opening a store-specific credit card can be a good idea for both your credit score and your wallet.

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