How to Use Store Credit Cards Wisely

Store credit cards are available at just about any place you exchange currency for goods. They may get you some extra percentage off on your purchases, but too many of them can hurt your credit score.

Store credit cards have advantages and disadvantages that general purpose cards don’t have. They’re tempting and easy to get because they’re often marketed at the point of sale. You want to carefully choose your store card and avoid the mistakes that may cost you at the end. Let’s evaluate the pros and cons of these cards to have a better picture.

Rewards, Discount & Other Perks
Store cards come with a bunch of benefits. Besides the initial discount, you can enjoy other rewards if you are a frequent shopper. If you’re loyal to a certain brand and they offer some good incentives for opening a card, then it may well be worth it. Some offers will only be available to cardholders. But be careful, these perks can entice you to spend more than you intended. This is the upsell strategy behind those enticing offers.

Credit Scores
Even if you have low credit card scores, you can fetch a store card easily. These cards can be helpful for people trying to establish or rebuild credit history. Be careful if you carry balances, as this might affect your credit scores adversely. If you apply for too many credit cards within a short time frame, it will make you look like a bigger credit risk, so don’t apply for a credit card at every place you shop. Store cards generally have a low credit limit. If you spend a lot, you’ll have a high credit utilization ratio. The credit utilization ratio is the ratio of the utilized credit to the total available credit limit. A high ratio can also lower your score.

Interest
Store cards often carry higher interest rates. The average credit card interest rate is about 15%, but many retail credit cards charge interest rates of 20% or more. If you pay off your balance in full each month, then you are safe; but if you don’t, you could be in trouble.

There are problems with 0% interest rate offers as well. Most 0% financing offers on store credit cards impose a retroactive interest if the purchase isn’t paid off during the promotional interest-free period. This means that if you buy something on a 0% financing deal for one year, you need to ensure that you repay the entire amount over the offer period. For example, if you pay off all but $1,000 on $5,000 by the end of the interest-free period, you could end up paying retroactive interest on the entire $5,000 starting from the time of your purchase.

Flexibility in Usage
In terms of flexibility, these cards don’t give you much freedom and can be used only at specific stores. Of course, you can choose a store like Target, where you can get almost anything you need. Store cards with a major credit card logo, like Target, may be usable across stores. This is particularly so for stores those are a part of a larger corporation. Co-branded store cards with an American Express, Discover, MasterCard or Visa logo can be used at any establishment that accepts that co-brand. Apart from their flexibility, some co-branded cards come with rewards programs that go beyond in-store perks. For instance, the Sears Gold MasterCard allows you to redeem points on rewards such as round-trip airline tickets.

Much of this same wisdom applies to B2B relationships. In fact, at Fund&Grow, we have literally written the book on how to get tens to hundreds of thousands of dollars of corporate credit from businesses like Grainger, Home Depot, Sears, Conoco, Dell, Amazon and many others. Recently, Mike Banks and I did a webinar on how to get $50,000 to $250,000 in interest-free credit, and there’s a part of that webinar where we focus specifically on how to get corporate credit. If you’d like to watch a replay of that webinar, click here. Or call us at (800) 996-0270 and a consultant will be happy to assist you.