Using store credit right

Store credit cards can be useful — and they can also be a trap.

On the downside, they generally charge greater interest (sometimes far greater) than a non-store-specific card such Visa or American Express. They’re relatively easy to get, and a store will often entice prospective borrowers with promises of discounts — “Apply for credit today and take 15% off your purchase right now!” People who don’t handle credit well can end up with a card that doesn’t allow them to shop around for the best prices (because it can be used only at one store, or at a couple of stores owned by the same company) and if they can’t pay it off right away, they’re stuck with exorbitant interest charges.

If you’re good with credit, you may think it’s harmless to apply for every card that’s offered to you, just to get the discount on that day’s shopping. But not only will open accounts you don’t really use take a potential toll on your future credit (if you’re spread too thin with too much available credit — even if you don’t use it — you may have trouble obtaining credit you really want, like for a house or a car), but also every time you apply for credit, an inquiry appears on your credit history; too many inquiries in too short a period of time can also make it hard to get the credit you really want.

And let’s face it — there’s irony in forcing you to shop at their store while repaying your loyalty with higher interest. Doesn’t sound like a fair way to treat a good customer!

The upside is that because they are relatively easy to get, store cards can play a useful role in re-establishing credit for those who have declared bankruptcy or made a consumer proposal.

If you can stick to them, a few guidelines can help you get the most out of store cards without paying too high a price.

If you do decide to take advantage of discounts for applying, wait until you’re buying something substantial, like appliances or furniture, to make the potential impact on your credit worthwhile. If the store has special card-holder appreciation nights or similar promotions, take advantage of them too, but don’t let the card become an excuse to buy things you don’t need.

If you can’t pay off the balance before you start to accrue interest, consider transferring your balance to a card with a lower interest rate, or paying it off with a line of credit.

Remember that once the interest starts piling up, the cost can far outweigh the discount you wanted in the first place.

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