As people are trying to minimise the amount of debt they have in the wake of the recession, the retail credit card industry has been forced to change. It is usually the first thing that people pay off and get rid of, and with good reason: store credit cards often have eyewateringly high interest rates and the late fee penalties that would make you want to cry.
With all this in mind, the average consumer may wonder whether opening or carrying a retail store card is worth it at all. Well, the answer is different for everyone; however, there are a few criteria that you can take into account.
They encourage and facilitate impulse shopping
First, are store credit cards the reason that you impulse shop? If you have a card with your favorite store, and you visit that store often, then is it not true that you are much more likely to impulsively purchase ‘stuff’ you do not need. These small (or worryingly large) purchases can ravage into a budget and set back your plans for saving money, assuming, of course, that you actuall have those plans.
Also, because they are so small and quick, they often do not register in the mind of the consumer until the statement hits your doorstep. And, as everyone knows, by then the damage has been done.
So you end up buying stuff you don’t need
Store credit cards can actually facilitate purchases you would typically stay well clear of. If you have a store credit card in your wallet, then you may actually even look for reasons to make purchases at that store in order to justify having the card at all. This is a dangerous practice and will lead to something that is worse than the impulse buy. Addiction.
This type of purchasing power can actually become addictive and lead to severe financial troubles. If you find yourself in this situation in any way, it would definitely benefit you to get rid of your store credit cards immediately. Even if you have not paid off the balance on those cards, cut them up so that you cannot use them anymore. If you haven’t paid off the balance, look to apply for a credit card from a bank that offers a long, low interest rate introductory offer on balance transfers. This will cut your costs and help you get that balance shifted faster.
And then there’s the impact on your credit score
Store credit cards may actually be causing more of a problem with your credit score than you realise. Why? Because the terms on these cards are usually stricter than a standard unsecured credit card with a financial institution, any late payment or month-to-month carryover can cause a real problem when it comes to a long-term credit report or credit score.
If you are trying to obtain credit for a large purchase such as a house or car, it may benefit you to completely get rid of any balance on a store credit card and make sure all your payments are up to date. Some would even say it would be better to close the account (so you aren’t tempted to splurge again).