Retail credit cards are often a tempting offer as they usually offer large discounts as incentives. A retail card can be both an excellent tool to save money as well as a limitation on efforts to reduce credit card debt.
The Good & Bad of Retail Credit Cards
Here are a few important pointers to take note of if you are considering applying for a retail credit card.
- The key is to only open up an account with stores that you shop at frequently.
- Retail credit cards have benefits that make shopping more convenient. However, this also makes impulse buying even easier. Therefore, take caution when making transactions.
- You can save a lot of money if used strategically. The card itself will typically come with a reward program. However, make sure to stack it with coupons and sales that the store offers to maximize savings.
- The best way to use any credit card responsibly is to keep track of spending and to keep in line with your budget.
- You can end up paying much more money in the long run if you don’t pay your bills in full every month. This will not only hurt your credit score but also make it harder for you to eliminate debt.
- You also want to consider your current financial situation and debt load before opening up any new accounts. Failure to truthfully identify your financial situation will result in negatively impacting your credit score.
How Do You Know You Are a Good Candidate for a Retail Card?
Evaluating your personal financial situation using the following questions can help you understand if you are a good candidate for a retail credit card.
- What is your credit score? If you already have trouble with your credit score and problems in your credit report you might want to reconsider accepting the offer.
- How many lines of credit do you have? If you already have too many open lines of credit, it might not be a great idea to open up a new card.
- What is the health of your existing credit cards? If you already have delinquent or defaults on your existing lines of credit, what you need is a good debt consolidation program and not another credit card.
- How well are you paying off your credit cards? If you are paying less than the minimum balance on your existing credit cards, adding more into the pile will make it even harder for you to eliminate debt.
- How are you using your existing credit cards? If you are depending on your credit cards to manage everyday expenses maybe your credit usage is above the norm. Experts recommend maintaining your credit utilization ratio around 30%. If you are already above this limit, then you should not take on any more lines of credit.
What Should You Consider Before Signing up for Retail Credit Cards?
There are many factors to consider when deciding on a credit card. Make sure to read all solicitations and applications before deciding on a card. Those that seem the most attractive can have some hidden terms that are not so appealing. Here are a few factors to consider:
- Usage Fees: Some cards have a membership or participation fees. These can be annual fees or monthly maintenance fees. They charge these fees once or on a repeated basis. These fees can affect your available credit when fees are applied. Some cards come with a flat fee each month, regardless of use.
- Transaction Fees & Charges: Some issuers charge a fee if you use the card to get a cash advance or make a late payment or if you exceed the credit limit. If you plan to pay your account in full each month, consider if there’s a grace period, which could alleviate finance charges.
- Rates: The annual percentage rate (APR) measures the cost of credit in an annual rate. The periodic rate applies to the outstanding balance and determines the finance charge for each billing period.
- Balance Transfers: Find out if there are any related offers if you plan to move your old debt onto a new card.
- Rewards: Retail credit cards offer rewards, including points that you can use towards purchases or discounts for using your card at the retailer. While rewards are a nice incentive to use the card, don’t use them as an excuse to overspend. Those rewards won’t help you repay the debt or repair your credit score.
If you are drowning in debt and are in need of assistance, call 800-769-3571 to speak with a certified counselor at American Consumer Credit Counseling today.