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It happens all the time. You’re buying something at a store and as you’re getting ready to pay, the cashier asks if you’d like to open the store’s credit card to save 10 (or 15 or 20) percent on your purchase — then they mention that it takes just a few seconds to apply, right there on the keypad. In some cases, you will still get the discount just for applying, even if you’re not approved. It’s certainly tempting. After all, who doesn’t want to save a little extra and go home with a full wallet? But it’s almost never a good idea. Here are several things you need to know about retail credit cards:

They Have High Interest Rates 

Interest rates on retail credit cards typically run 20% or more. If you were to pay the balance in full each month, that’s not an issue. But if you were to carry a balance for even a few months, the high interest rate would negate any of the additional savings you received when opening the card.

Store Cards Have Limited Use

When you open a store credit card, that card can only be used at that store, or in some instances, one or two more sister stores. Some larger retailers offer branded traditional credit cards — such as a Target Visa — which may be a better option since it would offer more flexibility. Be sure you know exactly what you’re applying for before you enter all your information.

They Offer Limited Rewards

Any perks or rewards you get from using a store credit card will be limited to that retailer. And cash rewards are generally only for use in the store, which can trigger impulse buys of items you don’t really need.

The Inquiry Can Affect Your Credit Score

Every time you apply for new credit, it’s going to impact your credit score. Even if it’s only a temporary drop of a few points, it’s not a good idea. And it can be especially damaging if you’re in the process of applying for a mortgage or buying a vehicle, when every point really counts toward getting the best interest rates.

Store Cards Typically Have Low Credit Limits

At first glance, this might seem like a good thing. A low credit limit means there’s less chance to overspend, right? While that might be true in some cases, running up a low-limit card to the max will still affect your credit utilization (the percentage of available credit in use), which is one of the key components of your credit score. It can also cause you to exceed your limit if you’re not careful, causing you to incur over-the-limit fees.

They Can Lead to Overspending

If you’re someone who shops for recreation or stress relief, store credit cards can spell disaster. Even if they have low limits, having multiple retail credit cards is one of the most common ways for credit card debt to become unmanageable. Juggling all those due dates for multiple credit cards can easily lead to missed payments and late fees. If you’re already in a situation with multiple retail credit card bills to pay every month, we want to help. Free Credit Counseling can help you get back on track and make a plan to pay them off quickly.

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Struggling with Credit Card Debt?

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