Consumers may think opening a store credit card with an enticing discount off of the total purchase price is an easy way to save a buck when shopping. However the immediate 10%-off incentive to open a store credit card may save cash in the short term, but wreak havoc on one's credit in the long run.
Every lender determines the amount of risk they are willing to take on a consumer by evaluating their credit scores. There are many factors that determine one's score, such as the credit utilization ratio and one's history. The process of applying for a store credit card can negatively impact yours as an automatic inquiry is made to the credit bureaus to evaluate the applicant's background. This "activity" is considered negative and one's score may be lowered.
Creditors want to see that consumers have substantially more credit than they are using at any given time. A store credit card may offer a consumer a line of credit similar to the amount they are purchasing that day. Once the consumer charges the full amount, their credit utilization ratio greatly increases and a FICO point deduction may occur.
In general, store credit cards are notorious for having some of the highest interest rates out there. If one plans on just making the minimum payment, that initial 10% discount will become worthless in just a couple of credit card cycles.
There is one great advantage to opening a store credit card; they are a great way to establish first time credit. Historically they have been easier for consumers to obtain than a national credit card. Just make sure to pay them off in a timely fashion and make the card work for your needs.
