There are different type of credit cards and you must consider your options if you want to keep yourself from being buried in debt. All these options suit a particular spending lifestyle and that is something that you may want to look into before you choose a credit card.
While these plastic cards have benefits, you have to know that opening a lot will increase the temptation to use them. That will make you more susceptible to a debt crisis. This is why financial consultants suggest that consumers own only one or two credit cards – and that is for major cards. There are probably experts who will also discourage you from using limited purpose cards like store credit cards. Unless you can control your spending, you may be better off keeping your card variety low.
Pros and cons of using limited purpose cards
But if you are determined to use store credit cards, there are a couple of pros and cons that you need to consider before you really get yourself one.
You know it is good idea to get store credit cards when:
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You are a regular patron in that store. Most of these store credit cards offer rewards programs that are usually more than what generic cards can offer. For instance, a Macy’s store credit card will give you 20% off of most purchases and that can be applied on top of any coupon discounts. For someone who is pinching pennies, that is a big deal. If your favorite grocery store offers their own merchant credit card and you go there every weekend, then go get their card. You can get huge savings as long as you use it often.
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You have the ability to pay off your debt immediately. Store credit cards can give you discount but if you cannot pay the whole balance every month, your debt can accumulate very quickly. These cards have a high interest rate – most of them beyond 20%. So make sure your purchases are budgeted so you have the money put aside every month. That way, when the bill comes in, you can pay off your credit card debt to avoid accruing interest.
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You want to build up your credit report but you do not qualify for major credit cards. This is a great first time card for young people who wish to build up their credit history. Of course, this will only work to your benefit if you know how to pay off your debts.
On the other hand, you know it is a bad idea to get store credit cards when:
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You are trying to stay away from high interest rates. As mentioned, these credit cards have a high rate and if you are concerned about that, then it may be best to steer clear of store credit cards.
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You do not want to ruin your credit score. There are three things that a store credit card can affect. One is your credit limit. Most of these store credit cards have a low credit limit. While that is not really so bad, it can affect your credit score – especially if you do not have the discipline to pay off your dues. If you cannot keep a low balance, the low credit limit can lower your score. The credit inquiry can also affect your score when the merchant looks over your current credit report to determine if they will approve your application or not. Lastly, it can reduce the age on your credit history. It is averaged between your credit accounts so a new account will reduce your credit age.
What to consider when getting a merchant card
When you are comparing store credit cards, you may want to use the online comparison site like Cardhub.com. But beyond that, you should consider the following details about them.
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Sign up bonus. Most of the time, these store credit cards are offered with a sign up bonus. It can be a free product, a major discount or other freebies. These do not usually last so try not to base your application on these. If you only signed up to get these freebies, that is not a good reason to own the card. Even if you do not have plans of using it, there are annual fees that you still have to pay for.
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Grace period. If you want to stay away from the high interest rate, you have to make sure that you can pay off the debt within the grace period. This means you have to know your timeframe to know when you should pay your dues.
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Zero interest promos. Some purchases are given zero interest within a period of the installment payments. Make sure that you know about this before you proceed with the purchase.
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Standard interest rate. The average rate of cards are in the 20% so consider the interest rate very carefully before applying for a card. In case you have to carry over a balance to the next billing, at least you know how much interest you have to face on your next payment.
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Discount details. There are specific discounts that you can get from your purchases and you may want to maximize them. After all, that is the reason why you got the store credit card in the first place.
It is important for you to read all the fine prints before you really consider getting a store credit card. If there is something that you do not understand, you may want to ask first before signing up.
