Safe or Sorry? Tips on Applying for Store Credit Cards

The purple apron was the bane of the department store where I worked for several years. It was a punishment for workers who did not meet their monthly quotas in obtaining charge applications. Bold white letters slashed across the apron begging customers to ask how they could save 10% off their next purchase and convenient pamphlets spilled from its pockets. The unfortunate wearer was forced to walk up and down the aisles and ask customers if they would be interested in opening a credit account with our store. The apron served as a reminder that we sales associates were always supposed to be asking, haggling, begging and doing whatever it took to get enough charge applications to meet our quota.

Today, more stores than ever are developing credit cards that can be used to charge purchases from their stores. With no annual fee and often accompanied by special benefits, applying for these types of cards may seem like a good idea. However, there are several drawbacks to store cards specifically the high interest rates that they often carry. The key to using these cards is to maximize the benefits while avoiding the potentially costly hang-ups.

Stores usually market their cards with some initial perk for signing up. J.C. Penney, for example, gives its customers 10% off their first purchase after an application is accepted. Sears offers exclusive ‘cardholder only’ sales throughout the year, and Wal-Mart suspends interest for three months on purchases $250 or more. Stores market these perks with the intent to lure customers into impulse sign ups. It targets money conscious women and those with tight budgets. To many busy or cash-strapped customers, 10% off a big purchase may seem like a good deal. After all, that fine print is, well, pretty small.

In fact, store cards are notorious for their huge interests rates. In an article published on money.msn.com, Stewart Farr describes store cards as “probably the most expensive way of borrowing money.” J.C. Penney, the same place that gives customers 10% off their first purchase, charges a 21% interest rate. Once those interest-free three months expire at Wal-Mart, a customer could be looking at a 19.99% charge on whatever is left from the $250 purchase. The dirty truth about store cards is that they are not a good deal if the balance is not fully paid every month.

So, should store cards be shunned altogether? Not necessarily, but in my opinion, they should arrive with a warning: use with caution. The perks of store cards are real. The Gap offers 10% off all purchases with its card the first Tuesday of every month. If you’re planning on some summer shopping there anyway, why not save a little money? Above all else, the key to using store cards is to pay off the entire balance every month. (The Gap’s interest rate is 19%). As long as you pay off the balance, you will not be charged any interest. In this way, you receive all the benefits without any of the drawbacks. Essentially, a store card can be a free coupon in your pocket if you use it intelligently. However, if there is even a remote chance that you won’t be able to pay off the full balance on your store card paying for your purchase with a traditional credit card contains a much lower interest rate.

Perhaps the greatest benefit of store cards is that they are relatively easy to acquire. Department stores make a huge profit off these cards, and, not surprisingly, it is easy to qualify for one. This can be a stepping-stone for anyone trying to build (or rebuild) good credit, especially for young couples or teens who do not have a credit history. Using store cards responsibly is a surefire way to impress banks when it comes time for loans or credit card companies who can dole out the real deal. I cannot stress the importance of using store cards with caution. The very people who could potentially benefit the most from store cards, those without money or credit experience, are also the most at risk of falling into the store card trap of only paying the minimum balance and getting slammed with interest. If you cannot pay off the full balance on your purchase then do not use store cards. There are other ways of building credit.

Customers must also be careful when choosing which store cards to apply for. It is all to easy to be swayed by perks or pushy sales clerks, but customers should try to limit the amount of store cards they carry. Owning a pile of store cards with various balances, pay dates and interest rates can be overwhelmingly complicated, especially if a bill gets lost or a payment is confused. Cardweb.com also warns “accumulating too many open lines of credit may affect your ability to qualify for new credit cards or other loans.” In other words, don’t over-extend yourself. Before committing to a store card, always take a step back and decide if this card is really necessary. Remind yourself of the potential dangers, and always read all the fine print so that you are fully aware of what the card entails. It is best to only open a few accounts in the stores that you shop the most. Remember that many traditional credit cards are now offering many benefits such as air miles, cash back and other perks with a lot less risk than store cards.

To sum up: some people avoid store cards like the plague while others have so many cards that they lose track of them. The best path lies somewhere in between. Store cards can be a money saving tool or a money sucking vacuum. It’s all in how you use it. Simply show caution before committing to a store account, follow the tips in this article and make the most out of your money. Always remember: you don’t have to apply for a store card no matter what the girl in the purple apron says.