NEW YORK (MainStreet) — It's tempting. You're at the checkout counter ready to make a purchase and the clerk makes an enticing offer: "Save 20% today by opening up a store charge!" Although this may sound like a great deal, experts caution that credit cards aren't meant to be an impulse decision, and the perks are often short-lived. Even if you're eager for a discount, you should always find time to research the card you're applying for. Check out these five store credit card unknowns before you sign on the dotted line.
1. Opening up a store card can lower your credit score.
Requesting new lines of credit will ding your credit score, making future home loans and car loans harder to get and ultimately more expensive, says consumer saving expert Andrea Woroch.
Unfortunately, when you apply for a store credit card, there is a "hard inquiry" on your credit file, says Todd Albery, CEO of Quizzle.com. Applying for too many store cards can lower your credit scores because you're loading up on potentially damaging inquiries, he explains.
"Even if you open the store credit card just for the promotions and close the account soon after, your credit can still take a hit," Albery says. "A portion of your credit history is determined by your available credit, so closing an account you don't use can lower your score because you will lose the value of the credit limit."
Simply put, it's dangerous to open up cards on a whim, says Brian Kelly, founder and CEO of credit card comparison site ThePointsGuy.com.
"It's a hit on your credit, and you have to evaluate whether it's worth the benefit to do it," Kelly says.
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2. The big savings are for big spenders.
Usually store cards offer a savings of 15% and 20% off your purchases on the day you open the card, but unless you're spending hundreds or thousands of dollars in a single day, you really aren't saving an enormous amount, Kelly says.
"If you are a luxury shopper dropping $15,000 and you can get 20% off, then that's a great deal," Kelly says. "But for most of us spending just a few hundred dollars, it makes more sense to take advantage of sign-up bonuses on traditional credit cards, which can be anywhere from $200 in travel points to $500 cash."
When you do the math, you realize you'd have to spend quite a bit on a store card to equal the sign-up bonus you can get from some of the best reward cards, says Gerri Detweiler, Credit.com's personal finance expert.
"Plus, with a new reward card you can use it anywhere that card is accepted, and not just in particular store," Detweiler says.
3. Traditional cards may offer more substantial rewards.
Sure, you're getting a discount with a store card, but you're forgoing the points you would be getting if you charged your purchase to a lucrative traditional card that offers travel points or cash back, Kelly says.
"Yes, you're saving $40, but you're losing the American Express or Chase points that might help you get a free trip that would be worth way more than that discount," he explains.
Free gift certificates throughout the year may be another item stores offer to sweeten the deal of their branded credit cards, but the savings won't often be much more than 20% to 30% at any point, Kelly says.
If you're still having trouble knowing exactly which rewards are better for your buying habits and lifestyle, Odysseas Papadimitriou, founder and CEO of Evolution Finance, the parent company of CardHub.com, says it's best to use a cash comparison.
"It's very had to compare miles with points, etc. so the best option is to convert everything to cash and then see what's going to offer the most bang for your buck," Papadimitriou says.
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4. Many store cards have deferred interest.
What it often comes down to is that the short-term discount that you would get from opening a card is not worth the high interest — often exceeding 24%, Albery says. Many store cards that appear to offer zero-percent interest actually offer "deferred" interest — so if you miss a payment or you can't pay your purchases off in full, those interest rates kick in.
"Even if you miss a payment by a couple of days, they go back and assess your interest rate as if they never gave you that zero-percent rate," Papadimitriou says. "So even if you have paid $480 towards a $500 TV, they will go back and charge you interest on the full $500 purchase."
Although deferred interest isn't unique to store credit cards, it is more common, Papadimitriou says, adding that the zero-percent offers are often used as a way to "get consumers on the hook."
5. Store credit cards are easier to get and reward regular customers.
"At the end of the day, store credit cards are easier to get than the premium travel cards, so they may be a good option for people looking to build credit," Kelly says.
Because a store credit card counts as a different line of credit on your credit report, people just building credit can benefit from having different lines of credit available to them.
Also, if you're a frequent shopper, some cards may be just what you're looking for.
"If you shop at Target frequently, for example, their card gives 5% off virtually every purchase plus makes a charitable donation to the school of your choice," Detweiler says. "I can't think of another card that gives 5% cash back on every purchase."
Additionally, the Kohl's card may also be a good deal for frequent shoppers, Kelly says. Once you spend $600, you'll be eligible for 18 different deals and discounts throughout the year.
— By Kathryn Tuggle