Department store credit cards sound great! Use the credit card in a specific store and receive a 10% or 15% discount on all of your purchases. No! We’ve compiled the top 3 reasons why department store credit cards make no sense!
1. Credit Score: Department store credit cards are very easy to open up (there is rarely a strict credit check). Since 10% of your credit score represents the type of credit you have, having a department store credit card seems as if you are desperate for credit, or that you were denied a traditional credit card because you don’t meet the criteria. Also, opening too many credit cards at one time negatively affects your credit score – and that’s 15% of your score. It is better for the credit score if you use a card from the major issuers instead of from a department store.
2. Interest Rates: Interest rates on department store credit cards are extremely high – much higher than a traditional credit card. For example, a Bloomingdale’s credit card has an interest rate of 24.5% that is variable, not fixed, meaning it fluctuates! The Bloomingdale’s card has a late fee of $39 for any balance over $300! A credit card from Kohl’s has an interest rate of 21.9%, but that rate will jump to 24.9% if you make a late payment! The BJ’s Visa Card has an an interest rate as high as 21.74% (based on a low credit score) and can jump to 30.24% (based on the level of your credit score) if you make a late payment or exceed your credit limit.
You may think to yourself, “If I pay the bill off in full each month, I won’t have to worry about paying interest.” That’s true, but what happens if you’re one day late or forget to make a payment? Then you have to worry about paying interest. With rates like these, you’re erasing any savings you received from the discount the card offers on the store’s items.
3. Excuses: Let’s say you open a credit card from a department store that you love to shop at and as a result, every time you use this card at that store, you’ll receive a 15% discount. This discount will give you an excuse to buy unnecessary items in that store because of the discount you will receive. As we say in our 20 Laws of Saving Money, just because something is on sale or just because you’re receiving a discount on an item, doesn’t mean you should purchase it. With a department store credit card, you will be saving money, but the discount will force you to want to purchase frivolous items, because psychologically it feels good to get a discount!
What are your thoughts on department store credit cards? Please comment below: