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Retail credit card - Things you must know to avoid falling into debt

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By: tiarajoseph11
on 20th Jan,2016

Want to get a retail credit card? You must know these basics before opting for it.

Whenever you are buying anything in a mall or departmental store, it's likely that the cashier might suggest you to apply for a store credit card and save 5%, 15%, or 10%. In some instances, the offer may increase up to 20% on your shopping.

Getting new store credit card or retail credit card is quite easy now. But, if you get too many of them, it’ll degrade your credit and may push you towards debt.

Here are the things you must know before taking out a store credit card to avoid getting into debt:

1. High-interest rates

Store or retail credit cards normally bear higher interest rates. The interest rate on an average credit card is about 15%, but practically several retail credit cards have 20% or more interest rates. If you are regular with your payments each month, the high APR may not harm your finances. But, if anyhow you miss out any of the payments, you’ll regret that you’ve signed up for this card.

2. Impact on credit score

As soon as you sign up for retail credit cards, the inquiries will have an impact on your credit score. Each time you apply for a new credit, it can temporarily hammer your score. If you are searching the market for a bigger loan, you might not want to lower your credit score by opening a bunch of new accounts. It seems clear that, it’s foolish to let go of five points or less from your credit score if you're seriously looking for an auto loan or a mortgage.

3. Credit risk

If you are going to apply for multiple credit cards within a short time, it’ll put a big credit risk upon you, so don't apply for a credit card at every place you buy holiday gifts. Retail credit cards often come with a low credit limit, so if you shop a lot using store cards, you'll have a high credit utilization ratio. The more your credit utilization ratio will be, the greater damage your credit score will encounter.

4. Acceptability

The credit bureaus are reported from most of the store credit card providers about their issued retail credit cards. But, these retail cards aren't accepted everywhere as compared to normal credit cards. So, you can’t use these cards in several places. It’ll become very difficult to use it for credit-building. Using a credit card very often may cause delay in bill payment or delay in checking errors in the statements.

5. Offers and card type

You may opt for a general rewards credit card. When you choose a card that you can use with only one retailer, it means that your card gets rewards from that one retailer specifically. So, it’ll be a waste of money if you sign up for this card. There are many reward cards in the market that’ll give you pretty good rewards on a bigger group of retailers.

6. Brand and perks

If you like some particular brands and always look for their products, signing up for that brand store’s credit card may be beneficial for you. Those cards sometimes carry good incentives for new sign ups. Sometimes, these brands will give you more than 20% off on your next purchase. They also offer bonuses or flash deals where you can get an additional discount that day, only if you’re a cardholder. But beware! All these perks can lure you to spend more money than your estimated budget. Know your limits and don't let them trick you that you're actually saving a lot by spending through their cards.

If you open a store credit card, limit yourself to one or two at the most. Also, don’t ever forget to pay the bills before time. It’s more important to pay your dues than adding a new store credit card.

Check out: How credit card companies trick you with rewards programs

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