Store credit cards and their risks
Event if the 20% discounts on these store credit cards are tempting the advice is not to open such an account. The stores are interested in having as many customers as possible owning this kind of cards because we are surely spending more money when we are using a credit card. More than that, on these private credit cards they earn a lot of money. There is a big difference between private credit cards, or store credit cards, were we pay an average interest rate of 24%, and the prime credit cards, like visa or master card, were the interest rate is around 12%.
Even if the Credit Card Protection Act of 2009 will go into affect in February, things won’t change a lot regarding the predatory practices. It won’t change anything about the interest rates. On the other hand the big plus is that it changes the transparency and the disclosure around the debts and conditions. From February on, you credit card statement will show you how many moths it will take to pay off that balance if you only paid them in a month and it affects how quickly fees and terms and conditions of the credit card can be changed, but it won’t stop any of this from happening.
Just signing up for such a store credit lowers your credit score. Because they like to see longer, older credit history, a new credit card makes your credit history younger, so for them it represents a higher risk. The other thing that lowers your credit score is utilization, when you utilize almost all the credit you have been given. The advice is to cancel all extra credit cards even if your credit score will take a hit, it will repair itself over time.
loading...
