Applying for department store credit cards can be a good way to establish credit and to take advantage of special new cardholder discounts. Still, department store credit cards also come with some disadvantages. You need to consider the pros and cons before you sign the application.
Convenience and Value
There's nothing like getting a good deal, unless it's getting an even better deal. That's how you probably feel when your department store offers you another 15% off your already great sale prices if you apply today for their department store credit card.
The first department store credit card was issued by J.C. Penney in 1958. Department stores such as Sears and Montgomery Ward, which offered appliances and furniture, quickly jumped into the market. Now most department stores offer their own credit card as part of their marketing programs. Cardholders can have the convenience of extending the payoff of a major purchase and can enjoy special discounts which are offered to cardholders.
Think Before You Apply
Applying for department store credit cards can be the first step in obtaining a really good financial tool. These cards can also become a financial nightmare for some consumers if they are not handled correctly.
Advantages
- Great way to establish credit - If you are having trouble getting a Visa or MasterCard, you might have a better opportunity to qualify for a small credit line on a department store credit card. Paying off the credit debt will be recorded at the credit bureaus and you will be able to start building a positive credit score.
- Cardmember-only sales - Some department stores offer special sales events and programs for their cardmembers. You can get "first pick" on items that will not be available to the general public until a few days later. Some stores even offer special rewards programs to their cardmembers where they can earn store credit after achieving a certain level of purchases with their credit card.
- Qualify for special offers - Special financing offers may be offered to cardholders such as no interest for six months or a year. This could be a major savings if the purchase was for an expensive item such as an appliance or a computer.
Disadvantages
- Very high interest rates - Department store credit cards usually have significantly higher interest rates than Visa and MasterCard credit cards. You can avoid these high APRs by paying off your balance each month. As a rule of thumb, if you have a Visa or MasterCard, it is usually a smarter financial move to use these lower rate credit cards for purchases you don't plan to immediately pay off.
- Applying for, or opening, a lot of new accounts will lower your credit score - Everytime you apply for a credit card, your credit history is checked at a credit bureau. Whenever a new account is opened, it is added to your credit history. If you apply for, or open, a lot of new credit card accounts it will negatively affect your credit score.
- Unused credit lines might be seen as a negative - Potential creditors often view unused credit lines as part of your available credit. Your ability to get additional credit, buy a car or rent an apartment might be negatively affected if your credit bureau reports show a large amount of available credit on several department store credit cards.
Evaluating a Good Deal
No annual fee and "15% off today's purchase" can sound like a look deal, but you should do a little math before you sign on the dotted line.
For example, assume the card has:
- A 19.8% APR
- No annual fee
- No minimum purchase
These terms mean that you will pay about $20 a year for every $100 you carry as a balance on your credit card. If you are only receiving 15% off on your first purchase, you are spending $20 to save $15. This is not such a good deal.
If you plan to pay off the credit card balance as soon as you receive your first statement, the credit card would be a good deal. You would not be paying any interest and you will have saved $15 on your $100 purchase. But remember, the card's available credit might have a negative effect on your ability to get credit -- even though you have been paying off your credit card balance each month.
Tips on Applying for Department Store Credit Cards
A department store credit card can be a helpful financial tool. To make sure you get the most benefit from the card, consider these tips before you sign the credit application:
- Pay off the department store balance first - If you must carry a balance, be sure to pay as much on the balance each month before you allocate your available cash to pay off lower rate credit cards.
- Know the APR and fees - Take time to read the credit card application carefully. Evaluate the APR - What is the interest rate? Is the rate variable or fixed? Is there an annual fee?
