It happens all the time: You’re at the register in your favorite retail store, and the clerk offers you a discount off your purchase if you apply for the store’s credit card. But is the initial discount worth getting one of these cards – and worth the hit that your credit score will take when you apply for a new credit card account and the card issuer runs a credit check? Also, how many store-issued credit accounts should you have, and is it a good idea to close the ones you don’t use?
Like all types of credit accounts, retail credit cards can be an asset to your credit. However, it’s really important to learn more about store credit cards and how to use them wisely before you take the store clerk up on that credit card application.
Pros of store-issued credit cards
Depending on the particular store, you might receive perks such as extra coupons, the ability to make returns without a receipt, free gift wrapping, and rewards points based on card usage that you can swap out for gift certificates.
Another good thing about store credit cards is that they’re great for people who are trying to build or rebuild their credit score. Retail credit cards often have a low credit limit and are easier to qualify for than a regular credit card if you have a low credit score. That makes these credit cards good for students and others who are just starting out with credit, or who are trying to repair their credit score.
Possible drawbacks of retail store cards
As we mentioned above, one of the biggest drawbacks of applying for a store credit card is the blow to your credit score when the card issuer checks your credit. So if you plan to apply for a mortgage or a car loan anytime soon, it’s probably best to hold off on applying for other types of credit if you don’t need them in the immediate future.
Also, keep in mind that store credit cards may have an APR of 20 percent or more – and that high interest rate could negate any savings you get from applying for and using the card. But if you pay off the balance quickly when you use the card, a store card can be a good credit option.
Zero-balance store credit cards: Close them or keep them?
And finally, what should you do if you already have a handful of retail store credit cards with zero balances? Should you close them or keep them open? It’s a good idea to keep these credit cards open, because that unused credit helps lower your utilization rate – the ratio of available credit to debt.
Using less of the credit you have available helps your credit score – and that also makes you more attractive to other lenders. But whether you should apply for new store credit cards depends a lot on your current credit situation and future plans. So if you know you have the necessary self-control to open that Macy’s credit card account and pay off the balance promptly, and if you don’t have plans to apply for any other major lines of credit in the near future, that store credit card could end up being a good deal.