If you’ve been shopping in a retail store lately, you might have been given the opportunity to sign up for a store card. Having the chance to save 10% (this is just an example figure as the real percentage could be higher or lower depending on the store) on your purchases that day, and in the future it might look good on paper. But, you need to remember that store cards are just another form of credit, and you’ll be getting into debt by signing up for one. If that’s not enough to put you off, here are a few more reasons why you should stay away from store cards.

High interest rates

Most of us are aware of the huge interest rates attached to some credit cards, but did you know that the situation with store cards can be even worse? A typical interest rate for a store card can be anything in the 20% to 30% region, and some cards can be even higher than this. With interest rates like this, it won’t be long before your “discount” is canceled out by interest charges and your so-called bargain turns into a nightmare.

Short grace periods

Some store cards have a very short grace period before interest starts being applied, so you may not get much chance to pay off the full balance before you’ll have big interest added on top.

Low minimum payments

The minimum payments for store cards is often extremely small, so you can expect to be paying off the balance for many years to come if you’re planning on only paying the minimum each month. For each month that your balance rolls over, you’ve also got the high interest charges to think about too.

Late payment penalties

Some store cards claim to be 0% interest, but this can go straight out of the window if you fail to pay the full balance in the specified time frame. You’ll often find that the 0% interest is waived, and you’re charged the normal interest rate. This makes your purchase much more costly than if you’d used a credit card, especially if your regular credit card is of the 0% variety and the higher interest means that it’ll take longer to pay off too.

The impact on your credit score

Store cards can do major damage to your credit score, especially if you apply for more than one in a short space of time. Many people open store card accounts without realizing it will be treated the same as if you’d applied for another credit card. Your credit score will take a hit if you’ve got too many open lines of credit.

When is it good to take out store cards?

Some store cards allow you to pay the balance off immediately after you make a purchase at the register. In this case, you can rack up the benefits of the card and use it like cash. Store cards are a huge revenue stream for retailers, and that’s why they try to entice you with discounts for signing up and initial low interest rates. But, don’t be fooled. These tactics are there to get you signed up in hopes that you start carrying a balance and paying interest on the card.

Store card offers may seem like a good way to save money, but this tends not to be the case if you don’t pay off the full balance at the first time of asking. The high-interest charges can quickly swallow up your initial discount, and the fact that they can be much higher than the average credit card means that paying cash at your favorite clothing store is often the best way to shop.

(photo credit: stevendepolo)