So you belly up to the cash register with a budget-busting cart filled with hundreds of dollars in merchandise when the clerk asks: “Would you like to apply for our store credit card? It will take 10% off today’s purchases even if you’re not approved.”
You figure — why not?
Hold on. Just like those impulse items in your cart can hurt your budget, impulse credit card applications at the store register can hurt your credit rating. So rather than cave into the pressure of the instant discount and the stares of the impatient shoppers behind you, it may be best just to say “no.” Here’s why:
Every application erodes your credit score
You likely have heard of credit scores, and maybe you know your FICO score when you walk up to the register. What you may not know is that simply saying “yes” to the store discount for an instant credit card application can drop your credit score by as many as 10 points.
If you have a high credit score, that may not cause you too much stress. But if your rating is on the borderline of “fair” and “good,” a new credit card application could sink your score into a lower bracket. If you’re hoping to get a mortgage or a car loan in the next year or sooner, this drop in your score could cost you far more than you’ll save today on the merchandise in your overstuffed cart.
For credit card first-timers, a high-pressure decision at the counter probably isn’t the best introduction. Read our guide here, so your first credit card application isn’t a rude awakening.
Store cards often have higher interest rates
In-store credit cards typically have lower credit lines, few perks and much higher interest rates — some store credit cards have annual interest rates approaching 30%. So if you are applying for a credit card, be aware that unless you pay off your balance every month, the cost of those purchases will balloon over time.
The 0% APR might not be a real deal
Often retailers require you to apply for an in-store credit card to take advantage of six or 12 months “same as cash!” deals — typically for big-ticket items, such as appliances. Questions to quickly ask yourself: Is this a true 0% deal, or simply a deferred-interest plan? If it’s the latter, unless you pay off the full amount before the promotional period ends, you’ll be charged the entire interest accrued retroactively to the date you made the purchase.
Also, be sure to check other details of the plan, such as penalties for late payment and the interest rate after the 0% deal is over. Often, you’ll find the plan is a high-interest wolf dressed up in the sheep’s clothing of a zero interest credit card application.
Unless you have a clear understanding of the fine print of the credit card deal, it’s best to say “no thanks” to that credit card application at the store register.
Image via iStock.