Are store credit cards savvy? Credit: shawnzrossi/Flickr
This is a guest post from Philip Taylor of PT Money: Personal Finance, a site dedicated to helping you make more money, save more money, and spend your money wisely.
It’s that time of year again. Everyone is struggling to come up with Christmas gift ideas, and some may be wondering how to pay for it all. A tempting solution is to put your good credit to work for you and use a collection of retail store credit cards to pay for all your gifts.
On the surface, it looks like a smart move: retail store cards often come with a huge upfront discount and promises of future discounts; plus, you don’t have to pay for Christmas until the end of January. But there is more to it than that.
Here are 4 reasons why it’s a good idea to skip the retail store card.
You Don’t Have to Worry About Credit Score Effects
To keep your credit score optimized you need to keep your credit utilization (credit balance divided by credit limit) low across all of your credit cards. Unfortunately, retail store credit cards come with very low credit spending limits. Since it’s very easy to approach the maximum on your card, it’s easy to affect your overall credit utilization, potentially bringing down your score.
Also, don’t forget that simple credit inquiries can have an initial negative affect on your credit score. It wouldn’t be ideal to apply for a bunch of new store credit cards during the holidays if you are going to apply for a mortgage or car loan in the Spring.
No High Interest Rates to Deal With
Another reason to dislike store credit cards is because of the high interest rates that they charge. If you plan on carrying a balance, then look for another card to use. Store cards commonly charge interest over 20%. This will negate most of the savings you get from discounts from using the card.
Your Spending Decisions Won’t Be Dictated
Research has shown that spending with a credit card can increase spending amongst some consumers, leaving them with regrets about their credit card spending. In my opinion, a store card is worse because they usually come with specific incentives to spend more (i.e. spend $100 on the card and get $10 back). With deals like this attached to the card, you might be tempted to spend more than you normally would, or at least spend more than you normally would at one store.
You Don’t Have to Deal with the Hassle
Finally, having a different credit card for every store you shop at is just a hassle. Even just three store cards means three credit card statements to review, three online accounts to manage, three bills to pay, and three cards to bulk up your wallet. Some people may be good at managing this system. But it’s not for me. I’d rather have one, standard-issue card with a simple cash-back reward system.
How about you? Have retail store credit cards proven to be worth it for you?
Welcome to Bargain Babe! I’m Mara, and I’m so glad you’re here. I am an obsessive bargain hunter and penny pincher, and I am determined to live a full life without EVER paying full price. 
About #1: Not necessarily. My Old Navy card has a $1700 credit limit, and my TJX card is $1500, which is much higher than some regular credit cards. There’s no chance I’ll spend anywhere near that at either of the stores, so it’s not a problem.
And for those worrying that opening new cards can hurt their scores: according to Credit Karma, having more than 10 credit lines open actually BOOSTS your score, not the other way around. Reasoning: “Consumers with more credit accounts generally have better credit scores because it means more lenders are willing to grant credit.”
While I don’t think you should sign up for any card that comes your way, many store cards have huge benefits if you’re a frequent shopper. And I stress – you should be a frequent shopper BEFORE you open the card, not become a frequent shopper BECAUSE of the card. Old Navy and Kohl’s send members-only coupons in the mail regularly, and Old Navy sends you a gift card after you’ve spent a certain amount (we get probably around $50 a year free). Target has now started giving their Redcard members 5% off on every purchase, automatically. There’s no push to spend a certain amount (that’s usually just the in-store promotions, like spend $50 get $10 back), it’s just an added bonus for having the card.
It just comes down to being responsible with your credit and using it as a cash replacement, not so you can buy things that you can’t afford. Since the interest rates are astronomical on store cards (my Target card is 29.99%, while a regular credit card of mine is 8.99%) you have to make sure to pay it off as soon as the bill arrives. I do have a system in place to keep track of all my cards – and I don’t even have THAT many – and while I understand it’s not for everyone (especially if you don’t shop at Kohl’s or Old Navy!), the benefits outweigh the hassles for me.