Store Credit Cards - An Ingenious Trap?

At some point, while you were shopping, you were asked if you would like to take advantage of the store's discount by opening up a credit card. Some stores have developed tactics that increases the chance that a shopper will open a store credit card. These tactics range from store workers telling you their story of how the 10% discount saved their life (ok, a little exaggeration) to not accepting major credit cards (like MasterCard and Visa). Yes, stores that don't accept these credit cards accept cash or checks, but they know that the likelihood of the average person carrying enough cash to cover their purchases or even a check is slim. With your purchase in hand and no way to pay for it, most people choose to open the store credit card to pay for their purchases instead of returning the items. It only takes a second to open the store's credit card and you will save 10% on your purchase-Right?

So why do stores generously offer us these discounts if we open a store credit card? Aren't they losing money? Stores are in the business of making money so even after they apply their store credit card discounts to your purchase, they still make a profit. However, stores are banking on their customers either not making the payments on time or making minimum payments. Store credit card interest rates start in the 20s - Yikes!, and have a much shorter grace period than other non-store credit cards. If the minimum payment is made or payment is not made, the store makes back its 10% plus more. For payments made late, stores are rewarded with a late fee as well as interest payments.

If you do open a store credit card, there are two things to remember:

  1. Paying the bill in full before the grace period ends ensures you take full advantage of any discounts.
  2. Opening a store credit card, can have an adverse effect on your credit score as it reduces the age of your accounts.

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