Store Credit Cards Are Ruining Your Credit Score
How many times have you been at a store and you are just finishing checking out when you here the question. “So you have a” blank ” credit card?” The blank here is the store name. As you say No, you are met with the response would you like to sign up today and you will save 10% off of your purchase? Tough Choice?
The answer is these store credit cards often do more harm to your credit score than good. For the store, the store card is a real money maker. They get to charge interest on the items that you just bought. So that sofa you would of paid for $1000 cash can cost $1250 in a year’s time. That is the beauty of interest to the store, it is a major profit center.
As a consumer, these offers are usually not beneficial. You do a large purchase and open a store credit card. This purchase usually nearly maxes out the new account, but you might get a year with no payments and interest. What has this just done to your credit score?
If you know the FICO score calculation, you would see the situation you just put yourself in. First, you have a new account, which lowers the average age of your credit accounts. This is the third most important part of your score, credit history, which makes up 15% of your total score.
Next, you have effected your debt to credit ratio which is the second largest portion of your score. You now have an account that is nearly maxed and this does bode well for your score.
What is the benefit that you often see with these accounts? Interest free for a year? That is great and all but most consumers don’t pay them off in this period of time. So when the interest hits, it usually is at a high rate.
You might get a discount off the current purchase? Maybe 5%? On a $1000 purchase, that is $50. Not much, when you think about the interest you wind up paying on the $1000 for the next year.
So are store cards worth it? In most cases No, but we are Americans we love credit!
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Tags: store credit cards
Posted in Credit Cards, Credit Score, FICO score
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