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Friday, January 31, 2014

Finance Fridays: Department Store Credit Cards


We have all heard the shpeel before: sign up for our store card and receive 15% off your total today. I was one of those cashiers who said that over and over again, all in hopes of receiving $3 bonus per card signed up for at my register.

TRUTH #1
Store cards are HARD inquiries on your credit report. Your credit standing is reported by three major credit bureaus: Equifax, Experian, and Transunion. This inquiry is not as negative as having an outstanding bill unpaid, but it does contribut to lowering your score a bit. How much lower is really part of a matrix used by each company. Try to hold on to every point of your credit score.

TRUTH #2
Store cards have high interst rates. Interest rates are charged to your total balance due, and most of these cards charge 15% to 28%. This annual rate (APY or APR) will be charged on ANY balance you have. And, to top it off, it accues DAILY. Word to the wise, if you have these cards, pay them off in full each month. Pretty please!

TRUTH #3
Closing a store card will negatively impact your credit. Once you pay off the card, if you do at all, it is tempting to close it and get rid of it. Instead, just do not use it. Do not go to that store. Closing the card will decrease your available credit, which means you will have more debt compared to less credit (also known as the debt-to-credit-ratio).

TRUTH #4
You can go to the store's website and watch for in-store deals, which will let you save MORE than you would if you were a cardholder and received coupons in the mail. The store promises some exclusive offers to cardholders, but that is untrue. The offers apply to all shoppers.

TRUTH #5
You don't need the card. If you can't afford to pay for the item or items with your bank debit card or cash, you can't afford it. Reward yourself with one clothing/shoes/accessories shopping trip once a month. At that time, you can spend the amount you have BUDGETED for in your monthly budget sheet.

Let me know if you want a budget sheet.

Diana

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