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Store credit cards are fairly popular with consumers. In a survey last year by The Motley Fool Ascent, 22% of respondents said they had a store card.
Store cards often have an easy application process and don’t require a high credit score for approval. That makes them especially popular with people who don’t have a ton of experience using credit and who might be more prone to mistakes. Read on for the most expensive store credit card mistakes and how to avoid them.
1. Opening one on a whim
When you see an advertisement for a store card while you’re shopping there, it’s tempting to apply. Many store cards include a discount on your first purchase, and who doesn’t like a discount?
But it’s better to compare your options first. Most store credit cards offer a lot less value than you could get from other cards. If you have a good credit score, you may be able to qualify for top credit cards with much better perks.
For example, a store card may offer 10% or 20% off your first purchase. If you spend $200, you could save $40. But there are cash back cards that offer sign-up bonuses of $200 after you spend $500 to $1,000 in the first three months. In most cases, you’ll save much more with that type of bonus offer.
2. Not paying off 0% APR balances in time
Many store cards have promotional 0% APR offers. If you pay off a large purchase within a time limit, such as six months or a year, you pay no interest on it.
These are usually deferred interest offers, which can be very dangerous. If you don’t pay off your entire balance in time, you can be charged interest going back to the purchase date. It’s basically an all-or-nothing deal. If there’s even $1 remaining after the promo period ends, the card issuer can charge all the interest you’ve avoided so far.
The minimum required payment also likely isn’t enough to pay off the balance during the promo period. Do the math yourself to see how much you need to pay, so you aren’t hit with hefty interest charges.
3. Letting your rewards expire
With most cash back cards and travel cards, your rewards don’t expire as long as your card is open. Don’t assume the same rules apply to store credit cards. Store rewards typically expire if they’re not redeemed or if there’s no earning activity for a certain period of time.
A common time limit is 12 months, which gives you plenty of time to use your rewards. Just make sure you’re aware of the rules with your store card, so your rewards don’t go to waste.
4. Not taking advantage of introductory discount offers
As mentioned above, lots of store cards start you off with a discount on your first purchase. If you’re going to open one, try to time it for when you have a large purchase to make at that store.
For example, you could open a card with your favorite department store any time you shop there. But if you know you’ll be spending $300 or more on back-to-school shopping for your kids soon, you might want to wait and maximize that discount.
5. Using it as a reason to spend more
Stores have loyalty programs and their own credit cards for one simple reason: to get people to spend more. Store cards that reward you with points on every purchase are a way to convince you to shop more often, and to buy more when you do. To be fair, this is also true with any type of rewards credit card, not just store cards.
You can come out ahead with rewards cards, including store credit cards. But you’ll need to be careful not to use the rewards your card earns as an excuse to buy more. Don’t let your store rewards card dictate your shopping habits.
While I usually recommend cash back cards over store cards, that doesn’t mean store cards are always a bad idea. They can be a good way to earn rewards for your favorite retailer while building your credit score. If you’re thinking about getting one, or if you already have one, avoid these mistakes so you can get the most out of it.
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