Every time you enter a retail store, you may see flashing advertisements drawing your attention to save money. Should you get a retail credit card? The following factors will answer your question.
- Save 15% deal: Let us assume that you may spend $200 to buy some stuff from a retail store. You get the retail credit card and save 15%, a $30 saving. This is a one-time saving, next time you will not get 15% discount and will pay at least 20% on the balance if you do not fully pay off the statement balance.
- Inquiry into Your Credit Report: Every time you apply for a credit card, there will be inquiry on your credit report. Frequent inquiry into your credit impacts negatively on the credit score. A low credit score may prevent you from getting a loan or a good interest rate on a loan.
- High Debt to Credit Ratio: Retail store credit cards offer very low credit limit. It is from $400 to $2000 in most cases. If you spent $200 out of a $400 credit limit, your debt to credit ratio is 50%. This will have negative impact on your credit score because it exceeds the recommended debt to credit ratio of 33% or less.
- Unnecessary Lure to Spend: Retail store credit card companies lure card holders by giving coupons and other discounts. This may encourage some shoppers to spend money on something they do not need. If the shopper does not pay off the bill fully, this person will spend a high amount of money on the interest.
- Initial Low Interest Rate: Some retail credit cards may offer you a very low interest rate for six months with a condition attached to charge you up to 25% in case you are late on payment. If you are not disciplined to pay your bills on time and miss payments, you will pay more than you save. Also, late payment will lower your credit score and badly impact your credit history.
Related: 5 Ways of Improving Credit Score
If you consider the factors mentioned above, you will be able to decide if you should get a retail credit card or not. In general, retail credit cards may not be a money saver in the long run even though it looks good at the beginning. Remember, it is easy to get retail credit cards. If you need to build your credit history and you cannot get major credit cards; getting retail credit cards will help you if you use them responsively.