We have all probably been through this at some stage. You are at one of your favorite retail outlets for new clothes and when you get to the check out counter, the sales assistant asks you if you want to sign up for their retail store credit card. Then she goes on to explain that you will save 15% on everything you purchase that day if you sign up for their card offer. It sounds great, doesn't it? I mean who wouldn't want to save more money? So you fill out the form and then happily leave the store with your purchases.
Although the initial saving of 15% is a good deal, you will find that it may not the case in the long run. Today many people have some sort of retail store credit card and it is big business for the retailers as they make a lot of money from them. Furthermore, these cards served as a form of free advertisements for the retail stores.
However, such a card also has its share of drawbacks as well. Here are 4 of them:
1. Interest Rates
A retail store credit card tends to have an interest rate as high as 20 to 30%. On the other hand, a regular bank credit card usually has an interest rate that is less than 15%. As you can see, the increase in interest rate can be detrimental to your financial health if you do not pay your balance in full at the end of each billing cycle.
2. Credit Score Rating
Such credit cards can have a negative effect on a person's credit score. The credit bureaus use a specific formula to calculate a person's credit score and they will calculate retail store credit cards differently from those regular bank credit cards. The credit bureaus may rate you as high risk if you possess such card with high interest rate. This in turn could lower your credit score. Moreover, having too many credit cards can add more negative points to your credit score.
3. Even if you do not use the card, the effect on your credit score is still not desirable.
4. Many retail stores will often take personal information from you and then share it with other third party companies. They do this as they can make money from it. What happens is the other companies buy such lists from the retail outlets and then send those people on the lists their own offers in the mail or to an email address if one is provided. You can potentially receive more junk mail in your mailbox.
Before you sign up for any sort of retail store credit card, ask yourself if you really need it. If you visit the particular retail store on a regular basis and you have a strict discipline when it comes to managing your personal finance, such a card may be beneficial to you.
