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Are Store Credit Cards Bad to Use Long Term?

You see them everywhere. Offers to save on your purchases if you get a store credit card. Home improvement and department stores are famous for them. You’ll see the offers in your email and at the register. Store reps probably even ask you to open an account.

But as tempting as store credit cards are, they can be a bad idea in the long term. For starters, these cards have notoriously high-interest rates. Plus, these cards usually have low credit limits, and you can’t use them with other retailers.

Before you get a store card, see if an alternative will better suit your needs. Other options, including installment loans, can help you save on interest and keep your credit score in check. Let’s look at why store credit cards aren’t the best idea.

Temporary Deals Increase Your Spending

Have you ever seen a deal on chips at your local grocery store? As a result, you grab the maximum number of bags you can. You feel like you’re getting a great deal and saving money.

However, when you get home and put those chips in the cupboard you realize you’ll never eat them all in time. Some will expire and others will lose their appeal. You’ll soon get sick of greasy potato chips with every lunch and dinner.

The same thing can happen with store cards. You have it to take advantage of 50% off appliances during the spring and random exclusive online savings. Now you’re buying stuff just because it’s on sale and not necessarily because you need it.

Some of this spending may not be on big-ticket items, but it’s still waste that adds up. When you stick to regular Visas and Mastercards, you’re not as tempted by exclusive or store-specific deals. And you can stick to your budget and financial goals in the long run.

Store Cards Carry Higher Interest Rates

No, we’re not talking about 15% interest here. We’re talking even higher than that. Think 20%, 26%, even 30%. If you pay your balance off in full when the bill comes, no big deal. But what if you can’t or you’ve taken advantage of a 90 days same as cash promo?

For whatever reason, you can’t pay off the full balance in 90 days. Guess what? You’re now slapped with high-interest charges dating back to the date of purchase. And you’ll continue to accrue tons of interest until you pay in full.

An installment loan from Simple Fast Loans, for instance, lets you borrow up to $3,000. You can apply online, get an instant decision, and take longer to pay your balance back. And you can review your applicable fees before you sign on the dotted line.

Lower Limits Can Hurt Your Credit Score

You’d think that having a lower credit card limit would help your credit score. However, that’s not always the case. One thing the credit reporting bureaus look at is how you use your available credit. Racking up balances that are at or near your credit limits lowers your score.

Now, store credit cards are known for giving account holders lower credit limits. So, when you buy that washer and dryer for $1,600 against a $2,000 credit limit, it doesn’t look good. You’re using 80% of your credit limit and credit reporting bureaus see that as a risk.

Higher balances in proportion to your available credit limits look like you’re maxing yourself out. In creditors’ eyes, you’re overextending yourself financially and may not have the means to pay lenders back. However, the opposite scenario can boost your score over time.

When you keep your revolving and outstanding balances at a lower percentage of your credit limits, that’s seen as less risky. It sends the message that you know how to use credit responsibly and pay down your balances.

Regular Credit Cards

Major credit cards tend to give account holders higher limits. Plus, as you demonstrate responsible habits (paying on time, paying down balances), major banks will increase your limit. You can refuse or reverse this, but leaving those higher limits in place can work in your favor.

Charge up to 30% of your limit and pay your balance in full each month. This is the quickest and most reliable way to raise or maintain your credit score.

You Can’t Use Store Credit Cards Elsewhere

A big disadvantage is you can’t use store credit cards outside of that specific retailer or chain. It might be nice to use it for every day or exclusive discounts. However, how often do you shop at that store?

Letting a credit card sit in your wallet doesn’t do much for your credit score. If you let it sit long enough, the bank that guarantees the card might close your account. Then, you’ll have to apply all over again.

Gas cards are infamous for this. You get a gas credit card but can only use it at stations that carry that label or brand of gas. But let’s say you move to another part of the country where that brand and its stations don’t exist.

You’ve essentially got a dead piece of plastic in your wallet. Why not stick to a major credit card that’s accepted no matter where you go? You won’t have to close an account, apply for a different card, and see your credit score suffer from a closed account and a new inquiry.

You Might Open Too Many Accounts

If you fall for every store card’s promises, you’ll end up with too many accounts. This doesn’t do your credit score any favors. One, it says you have the potential to build up more balances. Second, you could actually end up with too many outstanding balances.

It’s more difficult to pay back thousands of dollars in debt across several cards than it is to have one or two to deal with. When you limit your number of credit cards, you don’t have as much available credit. It’s harder to accumulate and increase your debt.

You can also meet or exceed your minimum monthly payments when you only have one or two cards. But when you have five or six, you suddenly have to fork over $100 instead of $25. That’s an easy way to overextend yourself and break your budget.

Plus, if you miss a payment on one of those cards, your credit score goes down. Missed payments and only making the minimums hurt your score more than closed accounts or high balances. And just think about those high-interest charges accumulating across multiple cards.

Special Financing Deals Might Become Expensive Financing Deals

This trap was briefly mentioned in the section on high-interest rates. However, there’s more you need to know about special financing deals with store credit cards. Many occasionally offer financing deals on big-ticket purchases.

Your home improvement store card says you can either take the normal everyday discount or get 0% interest for 12 months. One day your refrigerator stops working and the next day your stove goes out. You can’t do without either.

So, what do you do? You apply for the store card and select the 0% financing promo on a new fridge and stove. A year goes by but you’ve only paid half the original balance. Other emergencies came up and you switched jobs during that time.

Unfortunately, that 0% financing deal sounded good at the time. However, it wasn’t something you really thought about and budgeted for. Now you’re going to pay 20% interest or more for your purchase. That fridge and stove are now costing more than you originally thought.

Are Store Cards Ever a Good Idea in the Long Run?

If you shop at a store or online retailer frequently, store cards can be good for your long-term credit score and history. As long as you make your payments on time and manage your balances wisely, you could end up scoring some decent perks.

If you’re a homeowner, maintaining a home improvement store card might not be such a bad idea. You can get a discount on every purchase and take advantage of special financing deals for major purchases. The catch is you need to be certain you can pay off the balance in time.

Those who shop online frequently at major retailers might also benefit from store cards. You can score cashback or discounts on every purchase. Again, the key is to use store cards wisely. Don’t charge more than you can handle and pay off the balances to get maximum savings.

Final Thoughts

Because of high-interest rates and the temptation to overspend, store credit cards aren’t the best choice for most shoppers. It’s better to stick with major credit cards or use installment loans for emergencies.

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