The majority of credit cardholders have at least one merchant credit card, for occasionally use at their favorite department store. Usually people are lured in by the advertisements highlighting zero percent introductory rates and various other discounts. Unfortunately, in the credit card industry it can be very difficult to tell a good deal from a misleading scam, and department store credit cards can be both. The following information summarizes the advantages and disadvantages of these cards.
Department Store Credit Card Applications
Department stores spend many advertising dollars to solicit new customers for their credit cards, generally offering instant approval at the register. To accomplish this, most stores don’t require a full credit report or credit check to approve an application, making it much easier to obtain these cards than other types of credit cards. In general the stores only refer to the overall credit score, which doesn’t even have to be that high. This easy approval process should raise red flags for consumers, and rightfully so.
Department Store Credit Card Interest Rates
Department stores generally charge exorbitant interest rates, often exceeding 20% after the introductory period. To put that into perspective, a $1000 item purchased with a department store credit card and paid off over a twelve-month period would actually cost $1200, including the interest (and not including any applicable fees, such as an annual fee).
Even cards that offer zero percent APR introductory rates may be subject to unfair terms, which can negate the interest benefits if the balance is not paid in full before the grace period ends. For this reason, when applying for a department store credit card, always consider the fine print.
Department Store Credit Cards and the Credit Score
Applying for and frequently using a department store credit card can also affect the cardholder’s credit score, by increasing the utilization rate (which is the rate of available credit that is currently being used). For example, a cardholder with a credit limit of $1000 who spends $500 has a current utilization rate of 50%. The more credit being utilized at one point in time, the more financially unstable and dependent the cardholder appears to be. Over a short period of time, having a consistently high utilization rate can be bad for the credit score, which is why it’s important to responsibly limit the use of department store credit cards.
Similar Posts:
- Understanding the Fine Print on a Credit Card Application
- How to Opt Out of a Credit Card Without Damaging the Credit Score
- 4 Important Terms to Look For in the Fine Print
- Beware of Store Credit Card Scams
- Understanding Important Credit Card Terminology
Tags: Credit, Department Store
Recent Comments