Store Credit

The scenario is familiar. At the check out counter of the local department store, the clerk asks if you would like to apply for the store's credit card. As a reward for signing, you receive an instant discount in the amount of 10% or even 15%. Do you sign on? Before you do, think it over.

The Plus

The most obvious plus to accepting the credit card is the instant discount. These offers seem to surface when the total at the bottom of the receipt exceeds $100. A $10 discount is tempting and seemingly flawless.

Often these store credit cards send future discounts your way. If managed correctly, they can bring in future savings. Money back for points earned is also a great incentive that comes with the card.

Credit scores are raised when the amount of available credit is larger than the amount of debt. In other words, opening a credit card with a $2,000 limit can be good for your credit score if you don't carry a heavy tab on the card. Likewise, if you decide to apply for the card today but never use it, simply cut it up without cancelling it. This keeps your credit looking strong and eliminates the temptation to create a new bill.

The Negative

A credit card is a credit card. It may come with annual fees, high interest rates, and the temptation to use it in excess. Be careful. Interest rates on store credit cards are traditionally high. This isn't a problem if you don't carry a balance from month to month. It can be difficult to erase a bill that is created on a card of this type.

The more credit cards you have, the more trouble there is minding the monthly bills. When you entered the store you planned to pay for your purchases in a set way. Now, with the option to open a store credit card, your shopping trip is "free." However, in a month that "free shopping" will reappear. Will you remember that the bill is on its way? What about the other bill from the store across town? Did you remember to save money for the remaining bills that you want to pay down? The more cards in your wallet, the more problems heading your way each month.

The Answer

Is there an answer to the question posed by the store clerk? "Do you want to apply for our credit card?" she asked. For the shopper who says "yes," be careful. You'll gain discounts. For the shopper who says "no," you'll save headaches.