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Shop at a major retailer between now and Christmas and there’s a good chance the clerk at the register will offer you an instant discount – 10 to 20 percent off your entire purchase – if you apply for the store’s credit card first.
What should do you do?
“I know that it's very tempting, but always say no,” advises Beverly Harzog of credit.com. “It's just never, ever a good idea to try to get approved on the spot when you haven't even read the fine print.”
Some retailers offer their version of a Visa and MasterCard. Others, like Macy's, Saks, Ann Taylor, Gap and Best Buy, also have their own credit cards that can only be used in their stores.
If you're a regular customer, you may want to take home the application (yes, you’ll miss out on the instant impulse savings) to see if the card makes sense for you. The private label cards often offer special deals that aren't available to the general public.
Just remember this: Cards offered by retailers tend to be one-size-fits-all. They have the highest interest rates – usually 10 points more than a regular credit card – even if you have a good credit score.
“The terms of these credit cards are actually very poor,” says John Ulzheimer with SmartCredit.com. “The interest rates are almost always in the mid-20s and the credit limits to start are almost always below a thousand dollars.”
Ulzheimer calls these the sort of terms that are offered to people with really bad credit. “You would never accept these terms on a general use credit card like a Visa or MasterCard, but we gladly accept them for a retail store card.”
With an interest rate in the mid-20s, an unpaid balance could easily erase any savings you'd get if you applied for the card to get the instant discount.
Why not apply for the card, snag the savings and never use the card again? That seems logical, but any time you apply for credit it lowers your credit score a little. It may be only a couple of points, but you can’t be sure.
“You don’t know what you don’t know,” warns Ulzheimer. “You have no idea what’s going to happen to your score.”
What it your score drops just enough to put you in a less attractive rate tier? You could wind up paying more for all of your credit, including credit cards, future car loans, even a mortgage refinance.
“Whatever discount you got the day of your shopping is meaningless in the grand scheme of things if you’re paying more interest during the life of the loan that you’re taking out,” Ulzheimer cautions.
Worse yet, if your score is already on the borderline and that new credit account drops it even lower, you could be rejected when you apply for credit.
Remember: Canceling the card after you get the discount won't help. Any damage that’s been done to your score is done. Closing the account does not reverse that.
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I have the Loft card from Ann Taylor, which I only use for the discount, and they let me pay the balance right after the transaction on my debit card. In that regard, I do save because I'm not paying any interest. But, didn't realize that just having the credit card lowered my score.
Just having the card doesn't lower your score. It was the applying for it that may have lowered it a few points but only for about one year.
Exactly, pay off the bill each month. I get flights, hotels, merchandise, and cash back. All free if I pay off my bill each month.
The credit card companys are getting their 3% to 6% from the vendor anyway, why give them any more. In other words - if you have money in the bank use the card and pay it off then the 25% interest means nothing to you. Take the 10% discount or the flight to Vegas at the end of the year.
A credit card is "Usually" as good as the user!!
Dummies should not use credit cards!!!!
But that is what they are counting on. The stores do NOT care what it does to your credit score - they just want another fish on the hook. They count on people not paying off the card every month. And once you start running a balance you usually keep a balance for YEARS. The stores are willing to accept the relatively few "oddballs" that pay off their bills each month.
newscover, it doesn't seem dumb to apply for the card and get the discount when you know you will never use the card again. I wish had known that too many "revolving" credit cards affect your score regardless of how long there has been a zero balance on it (and never a late payment).
Don't do the pay off every month with Capital One, they got me when my promo period ended and jumped my rate to 38%. My FICO scores are in the low 800s and I have never in my life been late or missed a payment for anything, I own my own house (still over $80k in equity), I have never written a check that didn't clear and both me and my wife have excellent employment histories.
Paying off every month before interest is a great way to use a credit card. The card I use now for everything is my credit card. But I have not carried a balance from one month to the next in over 5 years, and unlike Capital One (which will never be in my wallet again) they are happy to give me airline miles and good interest rates while I play the game with them.
Henrillis, you are somewhat misleading. The only way to not have credit affect you is to live totally off the grid. You can't get a house or appartment without a good credit score and many jobs, especially the higher paying ones require a credit check as well. Then there is the problem of transportation. IF you don't use credit you either have to pay cash for a new car, or pay cash for a junker. Very few people can pay cash for a new car, not to mention paying cash for a new car is stupid since the dealership gives a bit of a break on credit purchases since they get kickbacks and they don't pass this along to the buyer. Best idea is to buy on credit and then pay as fast as possible or move the loan over to a credit union or other low interest loan originator. It really pissed my Ford dealer off when I purchased my last truck using their in-store credit deal and I paid off $8,000 cash the next day and within 2 weeks had moved the rest of the loan over to my credit union. The transaction saved me about $1200 on the price of the truck and my credit union gave me a .75% lower rate.
Lastly, be aware that the amount of signature credit you have affects your FICO score much more than a single credit application regardless of the outcome of the application. My wife's FICO is about 20 points higher than mine and other than 2 credit cards I put in her name with about $50,000 signature credit on them we have exactly the same history for the past 17 years. This story is somewhat misleading because of this, but because they are correct about the chance of a dip for applications and the minimal credit limit (usually under $1000) the credit uptick for having more signature credit available will be minimal as well. Most importantly was the interest rate, which is always obscene with store credit cards. Miss a payment and you may lose your house not just your credit score.
"CREDIT CARD"???? What an interesting term. These cards are, without a doubt, HUGE Vehicles of personal debt to the shylocks with NO end to their greed.
The more APT term is PDC OR PERSONAL DEBT CARD. "Credit card" has a VERY deceptive sound. It implys "Well, you've been a good consumer. HERE is CREDIT to YOU!! Free Money For You!!!
Caveat emptor?.....OR Your wallet is an EMPTY CAVITY after the shys finish with you,
I have been appalled that Macy's has sent out Visa cards, unsolicited, to store-card holders. I thought the Macy's Visa was to replace the store card. I rarely used it, and when I did, I was again insulted to find that the card charged interest beginning on the day of purchase, even when I paid the statement on time! I would never have used the Visa, but salespeople at Macy's said I couldn't get the same price on my purchases unless I used their card. I don't know if Macy's has been pursued legally for this practice. I no longer use their card. Their policy of constantly having special "sales" and "discounts" on outrageously priced merchandise has become fatiguing at best.
I have a quick test one should have to take before getting a credit card. If they cannot answer all of the following questions, then they do not need a credit card.
1. What does the term APR mean, and how is it different than the term "interest rate"?
2. Without looking at your paycheck and getting out a calculator, how much money do you clear each month? How much are your monthly expenses? Do you take in more money than you have going out?
3. Do you have at least enough money in savings to cover your expenses for one month if you lost your income?
4. If you pay the minimum payment on a credit card, how long would it take to pay off the credit balance if you paid only the minimum?
5. What is 8% of $100? What is 20% of $1000? What is 15% of $500?
Credit cards can be used smartly to your advantage.Casb back rewards and discounts are like free money. Pay your bill off each month, if you can't do that then don't use a credit card.
I funnel everything through one credit card and I keep just enough in my checking account to pay the balance in full every month. This accomplishes two things for me:
First, money stays in my savings account accruing interest (although a measly 0.89%). Second, I get 1-5% cash back on my card, which over the past 4-5 months has resulted in about $150. It's a hefty payment every month as I am paying for everything from the previous month in one lump sum, but it's the same amount as if I paid it pieces at a time.
You can be responsible with credit cards and be well rewarded.
This country has gotten so screwed up. People can make more in "cash-back" awards using their credit card than they can using a savings account. Merchants will take a credit card that will cost them transaction fees, but they won't give you a cash discount. Its all kind of Kafkaesque.
Still Working, so true. Other than gas stations I know of no store of any kind (legal at least) that offers a cash discount. I could seriously give my shopping money to stores that do.
The average credit card fee last I remember was about 4%, why don't stores give a 2% discount for cash and share the savings with the consumer? My bet is there is some kind of back scratching going on where the CC companies give kickbacks.
I have found that it is very possible to get a discount at the doctor and the dentist, for large purchases like furniture, appliances, flooring, carpeting and home repairs, and at small retailers when you offer cash and ask for a discount.
Still Working - Stores cannot give a cash discount. The credit card companies won't allow it. If merchants want to accept Visa, MC, etc., their terms of agreement state that they cannot give cash discounts. Otherwise, lots of stores would be doing that, and fewer people would be using their credit and debit cards.
There are actually some businesses that do not accept credit cards for this reason. My husband works for a property that books wedding venues and they accept checks only - and we're talking amounts up to $3,500! At first the brides balk at that, then they are relieved when they realize that they'll be leaving for their honeymoon with their wedding paid for, instead of having a big debt on a credit card.
Suze, I've found exactly the opposite. When my dentist found that I was paying in cash rather than using my insurance he basically doubled my bill. Seems the insurance companies force them to make those without insurance pay much higher rates than those with insurance. Now, if you have insurance you should only be paying a deductible, so how much of a discount can you get on a $10 or $20 co-pay?
Why don't I see the term Inquiry in this article. Each credit card represents an inquiry that will drop your credit score immediately. Two years later, the inquiry will drop off and score will jump back up. Was over 800 in June so I got several new cards. My scores fell to 781, 791, 794. Wont need credit for at least the next 1 1/2 yrs so this was done strategically. Worth it all since new cards were for travel and gasoline rewards. Separate line at airport for cardholders & priority boarding, etc. Put the autopays on them to accrue miles. I also do a soft pull of all 3 agancies daily.
Extractor, you're apparently a "real player" and may be one of the few actually able to benefit from it. Most others are just regular people, duped into being saddled with an incredibly bad (i.e., expensive, high matenance) credit card.
Sorry, RBTatt, no one gets 'duped' into buying anything, getting new credit cards or doing anything they don't want to do. The only ones being duped are dopes. Pay off your credit cards every month or don't get one.
They get duped into applying for credit cards at events like NASCAR in exchange for a T-shirt. I just tell the shills that the T-shirt is way too expensive. I'm still pissed T-Mobile pulled an unneeded report. Went to the one agency that has me scored a 781 = 3 hard inquiries. The others each have 2 inquiries.
JustABadOpinion: Go to any college campus and tell me that the kids there aren't being duped into bad credit card deals.
Why do these "experts" tell us to not accept a stores credit card when they offer me 36 months no interest? I am retired and find the idea of making a major purchase with that long a time to pay for it interest free a good deal. You "experts" would have all of these stores go out of business rather than trying to make a profit. You have no true idea what capitalism is about. If a consumer does not ask for credit terms, then perhaps they should get an 8th grade education and learn how to deal with credit and what the terms are before they accept. Credit is a necessary tool for many people.
Paul - Carefully read the terms of those "36 month interest free" agreements. They offer those terms based on the fact that most people will fail to uphold their end of the agreement. When the consumer falters on the payment agreement there is an interest amount that kicks in. The interest charged will revert back to the original date of the agreement and all of those "skipped" interest payments will be due with compounding. And to add insult to injury, you will get to pay a penalty for being late and also pay the high interest rate for the rest of the loan.
For those that always make their timely payments it can be a very attractive way to use other peoples' money. Just don't falter.
Paul, I always ask the clerk (deliberately) what is the interest rate and when they tell me I respond in a voice loud enough for all the other customers to hear. I then reply you've got to be kidding 29.9% that's robbery. I can tell you they won't be trying to trick the customers behind me. Unfortunately not everyone is educated about credit cards and if they were the economy would be better off. I dumped all mine except for one and that actually stays in my safety deposit box. BTW if they have to trick their customers to stay in business and make a profit then what does they tell you about their ethics and morals. They are no different than any other scammer!
I have one credit card only with a zero balance, I pay it off when I use it within a month most times. Had same card since 1971 paid interest on it about four times in that period I had it and never charged a membership fee or late fee. If the store or whatever place doesn't accept my card I just go to where its accepted to make a charge.
Learned this the hard way during a fun, but consequence filled, mid life crisis. I had finally gotten a decent score after a bad ex experience. After getting a few new cards over a 3 month period, it plummeted which really hurt me buying a car (no, not a crazy mid life car!) six months later. I am a year out, paying off the debt and earning back that good score. Not worth it. And, before I got a financial advisor and wised up, I knee jerk closed most of the cards, which makes the whole thing worse!
That's right. Applying for too many cards is bad for your rating. And also bad for your raating is having cards that sit "idle" in your wallet. Keeping it there "just for emergencies" can be bad. It needs to be "exercised" regularly. Banks hate carrying an account on the books if there is very little opportunity to benefit from charging interest. You don't need to pay them interest, but do use the card occasionally (at least once a month according to my adviser) and pay it off. A balance needs to be carried over from one calendar month to the next but do not carry it over one month on the charges.
thinker: You might want to find a different accountant. I have over a dozen cards that I use only to keep my signature credit high (between me and my wife we have a little over $250,000 in available credit from cards alone) which keeps my FICO high. I haven't used most of them in over 10 years and only 1 in the past 3 years yet my scores are good and when I go in for a car loan or mortgage refinance they beg me for my business. In fact, the only card I have closed down (which hits your FICO score as well) in the past 15 years is my Capital One because of the scam they ran on me.
One thing I will fully agree with you on though is to check on your credit regularly. Simply because you aren't using one of your cards doesn't mean someone else isn't!!!
It's a little funny that the author criticizes the offers as "one-size-fits-all" when this advice is also just that. I never carry a balance, never take car loans, already own a home, and I have enough available credit-card credit to buy a couple of brand new luxury cars on my cards. Of course I take those offers and immediately cancel the cards. This whole culture of making sure you'll be set to go even deeper into debt by making sure you've got a good credit score if just sad, pathetic, and emblematic of what's gone wrong in this country.
I took the Goodyear card when I bought a set of tires (store-only card.) I didn't need or want another account, but I received a rebate of $160 and 6-months-no-interest. The rate is sky-high (29.8%) - triggered if a payment is ever late or the balance is not paid within 6 months (when the hammer drops, they go back to day one of the purchase and apply the interest all the way through, compounding each month.)
So I will be super careful to pay more than required, earlier than required. I would not accept the card unless I had enough money to pay cash and KNOW that I will have enough to pay it off at any time. But I got a nice rebate and am on the list for promotional offers and discounts. The small hit on credit rating (for opening a new line) will go away with time.
You screwed up their underhanded scheme. Shame on you - but good on you. there are enough others who aren't as "careful".
Use to work for a retailer that required you to get an application for credit (did not have to be approved, just submitted for approval) for every 20 hours you worked. They did not exactly abide by this, rather they expected you to get an application every week. I guess what I am getting at is don't blame the cashier if you are asked 2 or 3 times. It is their job to bug you to apply for the store card. Best thing to do is say you already have one and you do not wish to use it.
We did have habitual applicants too. Those that knew they would never get approved but they wanted the discount (because you could get the discount for simply applying). Bad part about that was, if they applied within 30 days, you did not get credit for the application, but the customer got the discount.
I refuse to shop at places that try to shove their credit cards down my throat. This tactic is a display of low corporate ethics and dishonest practices pervasive in those business's.
I have a Best Buy card and I like using it for large purchases b/c if I pay off the amt within 18 mos, for example, then I won't have any interest charges tagged on. If you miss a payment then that's a different story, but avoid that by scheduling automatic payment. If I were to have used a regular credit card then it would have taken me longer to pay off the amt because of the interest charges that are normally tagged on. So, you do the math.
The discussion regarding poor terms, high interest rates, paying off any new charges while in the grace period, not carrying a balance, accepting a small dip in current credit score is all relevent – all pretty much good credit habits. I have great credit – never missed a payment, have enough (but not too much) credit available to me, etc. BUT, here's one thing I learned the hard way: Each of us has an INSURANCE score. This is something used by insurance providers (for me specifically, it is my homeowner's insurance), to assess risk. Their studies have found credit-related factors that increase insurance risk. These include: LIFETIME number of accounts ever opened, current number of open accounts, current outstanding balances, and probably a few more that I can't remember right now. When I made a several thousand dollar furniture purchase, and opened a new account with the retailer for 1-year no-interest financing, I accepted that my credit score would drop, but it affected my INSURANCE score (which I didn't even know existed at the time) enough that when my homeowner's insurance came up for renewal, I was assessed a 10% penalty basically because I had opened this account and it had a large balance that was not yet paid off (because I still had time before the 1 year was up). When my insurance provider notified me of this, he said that if I can get it cleaned up, I might be able to get some of that 10% penalty back. I then paid off and closed this account, closed out a few more unused store accounts, but was careful to leave open my regular accounts, and keep a high availability of credit (because it is not good credit-wise to use a high percentage of the credit available to you often). The insurance company re-ran my Insurance score, and in the end I was able to get back that 10% penalty. However, that account is now on my LIFETIME listing of accounts ever opened, and that will never go away. So, I agree with the author, open new accounts judiciously!
You are correct Steve. Insurance companies use your credit rating to "adjust" your premiums. The reason being is that most people who are financially strapped tend to be higher risks and higher claimants. And when they make claims they seldom use the insurance payout to repair the damaged property, whether real or personal. I'm not suggesting they are committing insurance fraud, just that they consider the car, for example, as disposable and drive it with a fender bent in. They don't expect to use the car as a trade-in on a future car. They will leave wind damage on the siding of their house despite the agreement with the lienholder to "maintain" the house. The lienholder never inspects the property and the owner "pockets" the insurance payment for other uses.
For me, it's the temptation. Knowing I will get a big discount on my purchases will only make me want to add more stuff to my shopping cart, making me later regret purchases that I didn't need. This happened to me in the past (about 10 years ago) and I ended up with about $1000 worth of clothing. Now that my store cards are paid off, I am more conscious of how I spend my money. I ask myself more than twice if whatever I am looking at is something I WANT or if it's actually something I NEED. If I need it, I buy it. If I want it and it's priced reasonably ($10 or less), then maybe I will go ahead and buy it, if not, I won't. Any new credit card offers are rejected, even if they come from a discount store like Marshall's. I also cancelled a lot of store credit cards like my Victoria's Secret, Limited and GAP cards, I only have 2 store cards and I pay them off within the same month of my purchases and only purchase things about 2-3 times a year now (major holidays and birthdays). I know better than to fall for impulse purchases and I don't even feel bad about rejecting the new credit card offers and "passing up a good deal" anymore. I learned my lesson last time with that $1000 bill which became about a $1400 bill in the end with the interest tacked on. Some of us truly do learn the hard way.
who proof reads this stuff?
What it your score drops just enough to put you in a less attractive rate tier? You could wind up paying more for all of your credit, including credit cards, future car loans, even a mortgage refinance.
Why doesn't the store offer a discount to people who pay cash. In this economy, shame on them for encouraging people to go into debt.
At the register, I say, "I need to use my debit card today." Implies that I already have one of their store cards, just opting not to use it.
OTOH, let me sing the praises of the Target Debit Card (no, I'm not affiliated with them in any way): I get 5% off every purchase, and the funds come straight out of my checking account. Plus they send me $5 gift cards for every 5 prescriptions I pay for with the debit card at their pharmacy. I've been using it for a year, and it's been a great experience.
It is time to get rid of the 3-4 credit bureaus. There is no reason why every person has 3-4 different credit scores. Each of us should only have one score. And the formula for determining my credit score should be made clear to the public.
I have never understood why applying for credit will lower my score. On the other hand, why does cancelling a card also lower my score?
I can carry an 800 credit score with a perfect payment record for the past 25 years but the moment I miss ONE payment, my score is destroyed forever. A better system is needed. Obviously missing a payment should be penalized but how can ONE missed payment in 25 years knock my score from 800 to 750 or lower? And the problem is there is no way to quickly fix a poor credit score. For example, I lost my job 5 years ago, fell behind on my bills for 60 days but once I landed on my feet, I was able to make my payments on time again but my credit score has yet to recover. So being perfect for the past 5 years means NOTHING, just because I missed two payments back in 2006.
Get rid of the credit agencies!
Agree with you! What I don't understand and read about it a lot, what does a credit score have to do with your auto insurance rates going up (should be driving related only)? I always pay my insurance policies by check ( money I have in my bank accounts) why use credit to pay very important insurance policies?
I work at a major retailer (to remain nameless). As employees it is our job to ask, do we want to, NO, but it's either that or our job. At my job we offer coupons to everyone whether it is from signing up for emails (which can be canceled at any time), applying for our store card which has a 30% savings the first day on some weeks, or even putting coupons in the local newspaper. The % savings can vary but are never lower than 15% and when you have our store card you get at least one savings day every month of 15% and there are always shopping passes that are given to card holders that don't have to used with the card. We also advise people if they get approved to turn around and pay what they charge, no need to get out of line or go to customer service.
I hate asking people but sometimes they can get 20% by just applying even if they aren't approved. If I didn't need the money that I make I would just work at "The World's Largest Retailer".
Also lets say someone applies for a store card and they don't have any credit at all, Does it hurt anything? I get asked this question a lot and honestly don't know the answer.
God Damn credit cards and the credit bureaus !!!
No cards ever again, pull out all your cash and stop using the banks.
Everyone's personal & financial situation varies from one another. What an individual chooses to make ends meet (these days especially) should never be judged or condemned. Some of us, manage to balance using all; credit, cash and debit without the perils and endless issues of all of the above. It's called "EXTREME BUDGETING". It is not easy, but any dummy or intelligent person, (as many of the entries above tend to lean towards), can do it. So please, to all the nay say'ers, spare me and the rest of us the unnecessary crucifixion regarding the issue aforementioned. Let the credit card fat cats take care of that, they are the true professionals loaded with greed. We the little and NORMAL people these days just want to survive.
If people are stupid enough to fall for these rates, they deserve what they get!
I agree.... personally I think that there shouldn't be these store credit card hound the customer till they say yes, procedures.. working retail at sears the past two years, customers don't appreciate the credit and rewards card offers... I feel maybe it's not just stupid people, but they just open the card so the cashier will shut up.
Since most store credit cards offer a lower limit, your initial purchase ay bring you close to that limit, thereby lowering your credit rating.