Colorful but deadly. Store credit cards.

Every time I see a person sign up for a retail store credit card at the check-out line, a little part of me dies inside. I would scream “No! Don’t do it!” silently, hoping to convey my dismay telepathically. Unfortunately, it never seemed to work.

There are about sixty-seven different reasons why you shouldn’t apply for a retail store credit card, but for the sake of simplicity and my sanity, let’s just go with five:

  1. Shady credit lenders.
  2. Interest rates are ridiculously high.
  3. Tarnish your credit with unnecessary line of credit.
  4. Benefits are usually nil while penalty fees are usually in abundance.
  5. Some are store-only credit cards and can’t be used for purchase at other locations.

Reason #1

When you apply for a store credit card, it is usually issued by a sub-prime lender in partnership with that particular store. You may enjoy shopping at that store, they may have great customer service, but be wary to associate their credit card offering with the actual store.

Store cards like Gap Card, Banana Republic Card, etc. are issued by the infamous Monogram Credit Card Bank, an offspring of GE Money. They are notorious for their shady practices, such as magical late fees and magical finance charges even if you paid balance in full. If you don’t pay attention to the actual bank that issues the line of credit, you’ll be doing yourself a major disservice.

Reason #2

The interest rates are ridiculously high. Expect APR in the ranges of 20%-24%

“Sign-up for an IKEA card and get 15% off right now!”

Wow. 15% off the brand new dorm room set sounds like a smashin’ deal—but not if you carry a balance. Alright, no problem—all you have to do is pay in full and you’re set. Except when you deal with shady lenders like mentioned above.

“Woops, we accidentally charged you. We’ll fix that and credit your account right away.”

“Hmm? You still have those charges plus extra finance charges from the previous month? Well… okay, we can only remove one of them though.”

Reason #3

It’s one thing to build credit, it’s another thing to screw up your credit with large amount of unnecessary accounts open. The entire ordeal can be made even more confusing by the fact that sometimes closing unused accounts may end up hurting your credit score, especially if you carry large balances.

It’s very simple. Don’t have more credit cards than you have fingers (hah, yours truly is approaching the forbidden ten as we speak). A small saving at some retail store isn’t worth the amounts you’ll pay when you have trouble obtaining favorable mortgage rate in the future.

Reason #4

The benefits are usually stupid. Congratulations! You’ve spent $1,000 at Banana Republic. Here’s a $10 gift card! Oh, there’s a minimum purchase of $100.

But while the benefits are few and far in between, the penalty rate and fees are more than many regular bank issued credit card, even compare to other sub-prime lenders. Things will probably be okay if you stay vigilant, but using a credit card shouldn’t require mass paranoia—just a small dose of healthy suspicion.

Reason #5

Some of these credit cards are store-only credit cards. If you don’t see a VISA, MasterCard logo (or a Discover like the Wal-Mart card pictured above), you won’t be able to make purchase with them at other places. Not a big deal if you’re a frequent shopper at those specific stores, but when combine with all those reasons above, doesn’t it reduce the value and utility of the credit card by a bit? Why bother making purchase with a card that can potentially give you so much trouble, especially when you have other options?

Alternatives

A lot of people seem to suggest store cards to build credit with, due to their general no credit, bad credit friendliness. In my opinion, they’re to be used as a last resort in rebuilding credit. If you have no credit because you’re a student, there are many student credit cards available from nation-wide banks such as Citi, Bank of America, and numerous others. The Citi mtvU Visa Card, despite associated with the now-crappy music channel, is actually a pretty good pick for many students.

Bad credit and want to shape up? Try out local credit union, or check out Patelco Credit Union’s Visa & MasterCard. It has been noted by others with bad-credit that you should try applying via phone with Patelco to increase your chance of approval. You can also check with your bank or credit union to see if they offer secured credit cards.

Having said all that, the next time the cashier ask you if you would like to sign up for a credit card, politely tell them “No thanks, I don’t think it’s a good idea to open a line of unnecessary credit which may potentially jeopardize my credit without carefully considering the benefits.”

If you dont’ do that, you may find yourself being stared at intently by a weirdo from the next check-out isle, with his lips moving and seeming to whisper, “No… don’t do it.”

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