Jul 05

3 Reasons to Always Turn A Store Credit Card Down

20110602-103523.jpg3 Reasons to Always Turn A Store Credit Card Down

You’ve heard it. “Would you like to save and additional 15% on your purchase today by applying for a store credit card?”

Who wouldn’t want to get 15% off of their purchase with today’s rising prices? ME. That’s who.

Many reasons exist to steer clear of Store Credit Cards. My favorite 3 reasons to be a “Negative Nelly” are:

Reason 1: The Math Is Bad
The math is not in your favor with a Store Credit Card. So how bad could 15% off actually be?

Take this scenario for example:
You spend $100 at the Store. You say yes to the 15% discount, they hit your credit for applying, and they pop you with a 24.99% interest rate. You’re smart though. You are going to pay off the card before the interest is added and save yourself $15 bucks today!

Something happened though. You meant to pay off the card as soon as you got the bill because you had the money in your checking account. However, instead of getting JUST your Old Navy bill, you got a bill from the A/C repair man for your broken air conditioner you weren’t expecting AND Old Navy on the same day. Old Navy says you’re minimum payment is $15 and the A/C repair man charged you $100 bucks.

You pay the A/C guy with the money you had set aside to pay Old Navy (and then some) and you pay $15 dollars to Old Navy.

See a pattern developing here? You won’t pay off the card. You’ll find something else you can justify as an emergency and pay that instead. In fact, if you’re like many Americans, you’ll actually buy more from Old Navy and put the purchase on the card. After all, it’s only $15-$20 bucks a month, right?

Look at these numbers to see the actual amount of your purchase.
$100.00 – Purchase
$ 15.00 – Discount
$85.00 – Balance on the card.
$23.85 – Interest with no payments on 12 months
$108.85 Total Owed

If you were allowed to make no payments and the interest rate is 24.99% you will actually owe $108.85 at the end of 12 months. That’s almost $24 bucks in interest for an $85.00 account to get a $15.00 discount on day one. I know you could make 1,2,3, or even 4 easy payments and pay it off before 12 months, but you won’t.

The problem is you will make payments… and use the card… and make payments… and use the card…etc. You’ll find yourself in a vicious cycle that is too hard to break and too easy to repeat at other stores.

Every financial decision you make has an impact on your life, regardless of the amount in question.

Say “NO!” when the clerk asks and move on. If they persist, ask them if they have one and ask how long since they had it paid off. If that doesn’t shut them up, just leave.

Reason 2: Too Many Open Accounts Can Hurt Your Credit Score
Wondering how your credit score is calculated? You are not alone. Most of the questions I answer as a loan officer are about how credit is calculated. You’d be surprised at how many myths are out there and being presented as truths by “professionals” in the financial industry.

If you really want an education on now credit scores are calculated, get Your Credit Score by Liz Pulliam Weston and read up.

One major ingredient to your score is the number of open accounts you have. You may be asking “Why does it matter if a lot of people want to give me credit? Doesn’t that say I’m worthy of lending to?”

Well, it did at the time they extended it to you. But too many open accounts could mean that there is the potential that you could become over-extended very quickly which does make you more risky as a borrower. For example, you might go use up all of your available credit in one dahatTiehat would put you and your creditors (or potential creditors) in a bind.

One more store account isn’t worth the discount you’ll get even if you get the discount, pay the card off, and close it. Liz Weston addresses that too in her book, Your Credit Score.

This type of activity is reflected negatively on your credit bureau and should be avoided.

The more cards you have the more of a risk you are!

Reason 3: When Its Easy To Spend, You Spend More Often
Just a simple fact. When we don’t have to think about the things we eat, we eat more. When we don’t think about not exercising, we don’t exercise, and when we don’t have to think about how much to spend until the bill comes, it’s too late.

Use cash or your debit card for purchases from department stores and other places. It will help you to budget more efficiently and stay in control of your money. If you don’t control money, it will control you. Tell your money what to do by using a budget and live a happier life.

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