The Truth About Department Store Credit Cards

You’ve seen this scenario play out many times.

As you are checking out at your local TJ Maxx, Home Goods, Lowe’s, Best Buy or any other large retail store, the cashier casually asks you if you would like to quickly apply for a store credit card and save 10% on today’s purchase.

Or perhaps you are looking at a larger purchase such as furniture or appliances, and the merchant is offering you interest-free financing for 6 or even 12 months.

These offers can be pretty tempting at times, but are they as good as they seem?  Can accepting these types of offers damage your credit or cost you more money down the road?

Well, it depends.  Let’s dig a little deeper…

The first thing you must realize is that if you accept one of these offers, you are applying for a credit card.  If you have great credit and plan on paying the balance off quickly, then this will not likely hurt you.  But if any of these situations apply to you, then you may want to reconsider before accepting the offer:

• If your credit is already poor or below average, the new account will likely drop your scores even further.
• If you are in the process of buying a house, you don’t want this new inquiry, account, or debt coming up on your credit report.
• If you can not pay off the balance before the promotional period ends, it’s going to cost you.
• If you already have multiple department store cards with outstanding balances, adding another one is not a good credit decision.

Department store cards typically have very high interest rates, often above 20% or even higher than 25%.  So that 10% you save when you sign up is lost quickly if you can not pay off the balance in full.  Conversely, many “normal” credit cards can be obtained with interest rates closer to 15%.

And remember that offer for 6-12 months of interest-free financing?  Well, when you read the fine print, you’ll usually discover that it only applies if you pay off the full balance before the promotional period ends.  Interest begins accruing on those “deals” immediately and only gets waived when you are paid in full prior to the end of the promotional period.  If it takes you longer to pay off your purchase, plan on paying that interest as well.

The bottom line…

The credit card companies behind these department store cards are not your friend.  They are hoping that you can not pay the balance any time soon.  They make you a small offer up front knowing that they will score big if you make the minimum payments or carry any sort of balance.  If you play into their hands and fail to pay off that purchase quickly, you’ll rack up more debt and hurt your credit scores in the process.

So before you accept that promotional offer, think about it very carefully and make a wise financial decision.

And one last thing…  if you have teenage or college aged kids, make sure they understand this as well.  It’s pretty tempting for a 21 year old to jump at the offer a cashier might be throwing their way.