If you've gone shopping at a department store lately, I’m sure you have been asked to open a store credit card. For doing this, you could save 10-, 15- or even 20 percent on your purchase that day.
Here are 3 reasons this is a very bad decision:
1. When you apply for a credit card, retailers pull up your credit report and scores. Multiple inquiries in a short period of time can reduce your credit score, especially if you don't have many credit accounts. Inquires account for 10% of your total FICO score. This type of inquiry stays on your report for 2 years and will affect your score for one year from the date it took place.
2. Retail credit cards come with a low limit in most cases compared to a general credit card. This is highly important because the second largest factor in your FICO score is the amount of credit card balances or credit card debt compared to the limits. For example, take a $250 balance on a store credit with a $500 limit; you'd have a 50 percent credit-utilization ratio. But on a $5,000 credit limit on a general credit card, the ratio is just 5 percent. The higher the ratio, the worse your credit scores!
3. Store credit cards usually also have very high interest rates.
With all that combined, stay away from the ever so tempting offer next time you are checking out to open a new card for the 15 or 20 percent discount. Don't use a new credit card as a discount coupon.
