Department store credit card sign ups always have ridiculous tag lines that make you think "Wowee what a steal?! Where do I sign". Especially this time of year, as you stand by the register and the cashier rings up all the expensive gifts that aren't for you, it might be tempting to take that one time discount, but the devil is in the small print. Before you sign up for your next department store credit card, read on to find out why this is a terrible idea.
Theres a reason why department store credit cards are so easy to get and are often advertised as easy ways to get credit if you have bad or no credit. It's because they are a terrible idea. Here are just a few reasons why:
Not the best sign on bonus
Most store credit cards offer sign on bonuses that are good for one time use. While the initial payoff is almost immediate, after that you are stuck with whatever terms you agreed too. Other major credit cards offer sign on bonuses lasting 6 months to a year - a much better pay off in the long run.
Applying and approval are NOT instant
Every time you apply for one of these cards, the store runs a credit check which in turn hurts your credit score. So put the pen down and walk away.
High interest and high fees
Unless you plan to pay off your balance in full each month, which of course you will, you're looking at ridiculous interest rates and fees on any running balance you have on your card.
Hidden fees and minimum purchases
Even if you intend to use your card responsibly, some stores require a minimum purchase amount each month or might charge a maintenance fee should there be no activity on the card. In other words, they charge you just to have the card.
They prevent comparison shopping
Often these cards can't be used else where, so you're stuck shopping at the same store to earn the penny rewards you were promised when you first signed up
Low Credit Limit
Unlike major credit card issuers, store credit cards usually don't have high credit limits, and if you are going to apply that card straight away to your current purchase chances are you've already used 1/3 of the credit available. Ideally, balance owed on a card should hover around 20% of the initial credit limit.
Getting rid of them isn't easy
After you've paid out your balance and all the interest, closing a credit card never helps out your credit score. Because of the way credit scores are calculated, it will almost always shave a few points off your credit score.
Getting your first credit card, or any credit card, should be a well thought out and researched choice. Just say no to the Gap card. The possibilities may seem endless with your shiny new $250 credit limit until you see your first bill and you're being charged 20% interest on the pack of gum you bought. There are other ways to finance holiday purchases, you just have to get creative or go to craigslist.