As fall turns into winter, and malls become filled with holiday shoppers, retailers will make it a point to offer customers a store credit card as they check out. Typically, such offers come with some sort of a sign-up bonus in the form of a discount on the day’s purchase.
At that moment, filling out an application in exchange for a big discount may be tempting, but is it smart? Here are seven things to consider before applying.
1. What is the grace period?
A credit card’s grace period is the time that cardholders have to pay their balance in full without having to pay interest. Most credit cards have a grace period, but some don’t. Without a grace period, charges start accruing interest from the day of the transaction.
2. What are the promotional financing terms, if any?
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Some store credit cards offer interest-free financing on new purchases for a limited time. Thankfully, the CARD Act of 2009 requires these financing terms to extend for at least six months. Shoppers who take advantage of store card offers should understand exactly how much time they have to pay off their balance before incurring interest charges.
3. What is the standard interest rate?
The standard interest rate is what you will be charged if you do not pay your balance in full and on time, and when any promotional financing offer expires. The cards with the lowest interest rates range from about 6% to 16%, while many store credit cards charge more.
4. Are there other ways to get a discount?
The big lure of store credit cards is the immediate discount that is available. Yet stores offer other discounts that don’t require applying for a new line of credit. For example, some stores will provide shopper coupons when you register your email address, text them or like them on Facebook. And, of course, your local newspaper is still a great place to find department store coupons. To find these discounts, you can ask the salesperson or clerk if there are any discounts available. Sometimes, that results in being given a coupon as valuable as the discount for applying for a card.
5. Are you trying to build new credit or to keep a high credit score?
Applying for a new credit card will affect your credit score. Those with a limited credit history are likely to benefit from receiving a new line of credit. At the same time, those who apply for several new credit cards within a short period of time will see a small but temporary drop in their credit scores. In addition, it is always wise to avoid any new credit applications before closing on a home mortgage or any other large loans. Banks do not like for loan applicants to take out new lines of credit at that time.
6. Is it a store charge card or an actual credit card?
Store credit cards can be valid only at that store, or they can belong to a wider payment network such as Visa or MasterCard. Both products can be worthwhile, but applicants should know which one they are getting.
7. How generous is the sign-up offer?
Sure, it is nice to save 10% on your purchases, but in most cases, the savings will not be very large. In contrast, many credit cards offer huge sign-up bonuses that can be worth hundreds of dollars in cash, or even more in points or miles. Given that shoppers can’t sign up for every credit card they are offered, it makes sense to apply for the cards that offer the most valuable incentives.
By fully understanding the nature of store credit cards, you can make the right decision when asked to apply for one this year at the checkout counter.
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