How many times has the cashier across from you asked you this question: "Would you like to apply for our store credit card?"
They may follow up with: "It will qualify you for 10 percent off on all your purchases, including this one."
It is easy to say "yes." After all, signing up for the store credit card seems to make financial sense. You were already going to buy the items in front of the cashier. Why not sign up for the card, get your discount and spend less money? Then, when you pay off the item, you can cancel the card.
That does sound smart. However, many of us don't follow through with that "payoff the charge and cancel the card" part. That could lead to financial challenges done the road.
While there are some benefits to using these cards, there are also downsides.
Retail credit cards usually come with higher interest rates than standard bank or credit union issued cards. This is important if you do not plan to pay your credit cards in full each month.
You might intend to pay off your retail credit card in full as soon as your first statement arrives. However, what if you do not have the money? Then you'll pay only part of your bill, with interest kicking in on the remainder. Since the interest on these cards is already higher than standard credit cards, it can build quickly, leaving you with a debt load that gets increasingly larger.
Another things to be aware of with retail credit cards is the terms of the card. In addition to high interest rates, there are also penalties. Late fees for not making your payment on time, which can also increase your interest rate even higher.
If you pay off your balance each month, store credit cards might not be a bad financial decision. That is especially true if you sign up for a card with a retailer where you spend a steady amount of money each month or multiple times a year. Store credit cards often offer discounts on store merchandise, something that can save you money, as long as you do not keep a balance each month.
Store credit cards might also be an attractive choice for consumers with no credit histories or bad credit, as it's easier to qualify for retail credit cards. You can then use these cards to demonstrate sound financial behavior -- paying your credit-card bills on time. This practice will gradually help you rebuild damaged credit or establish a credit history if you do not yet have one.
Before accepting your cashier's offer for store credit, make sure to consider your financial habits and credit status.