I’m sure you’ve been there… you’re at checkout when the cashier asks you “Would you like to open up our store credit card and take an extra 10% off today's purchse?” In fact, not only am I sure you’ve been there, I’m sure you’ve been there a lot more lately. That’s because department stores and retailers are releasing and offering their own credits cards more now than ever before. We’re all tempted by the extra savings once in a while... but when is it really worth it?
If you don’t have the best credit and are trying to make it better, department store and gas station credit cards may very well be a good place for you to start. As opposed to Visa, MasterCard, or other major credit cards - store cards are usually easier to qualify for. But beware, they almost always come with a high interest rate. This is why experts recommend only using store cards to rebuild credit, and not for financing your purchases. As with any credit card, when you apply there is a "hard pull" inquiry made which can reportedly lower your credit score by up to 20 points in some situations. So even if you qualify, and you want that one time 10% off… make sure to run the numbers first to see if that store credit card really makes sense.
Take Nordstrom – with a sky high 21% interest rate, you’ll need to spend 2,000 bucks just to get a measly 20 gift certificate. Is a 1% rebate really worth it? Or take Bloomingdales, where you don’t even start earning rewards until after your first $1000 in purchases annually. What’s their interest rate? Even worse… 21.7%. Some stores such as Gap aren’t quite as bad – a 16% APR and at least you get a $10 gift certificate for every $250 you spend - that's a 4% rebate. But it’s the Gap, not Tiffany’s… how many dollars will you really be spending there a year? In all fairness, most store credit cards seem to offer one benefit – special sales for their cardholders. My grandma use to make all her home and apparel purchases at this department store called Elder-Beerman, and boy would she buy a lot… so for her I think it was a benefit to have their store credit card, which she did. But will these rewards outweigh the risks for you?
Gas station credit cards may benefit you if you’re rebuilding credit. If not, run the numbers. Sure, your Shell or Mobil credit card may offer a 3% discount on their gas… but isn’t their gasoline usually at least 3% more than the cheaper gas stations anyway? This is why you need a credit card that offers you high rebates on all your gas purchases, whatever station you choose (visit our Rewards forum to learn about these options). A benefit gas station cards offer you that many people forget is that they can be used to purchase car maintenance at their service stations. This may be a benefit to you if you are rebuilding credit and don't have the money to get your car back on the road. They also usually offer travel benefits. However many normal credit cards such as American Express usually offer travel rewards and discounts too which are better. My two cents is you should really only open store or gas station credit cards as a way to repair your credit.