When to get a Department Store Credit Card
Picture this: You’re in a department store like Macy’s or Target. You find something wonderful that you know you just can’t live without. Well, you could live without it, but it wouldn’t be easy. So you decide to buy it. Maybe you intend to use your major credit card (Visa/MasterCard) but the sales clerk has a better idea. “Would you like to apply for our store card and save 15%?” Don’t blame the bubbly sales lady; she’s required to ask you this. If you feel pressure to accept this discount, and make your purchase a bit cheaper, keep a few things in mind.
Department Store Prices, Department Store Interest
When opening a department store account, you might have an initial savings of 15% at most. So for every $100.00 you spend, you save $15.00. The downside is that while the items you are purchasing may be at a discounted price, the only way to truly save money is to pay off the entire balance before the first due date. If not, you will be subject to the department store interest rate, which usually ranges from 20%-30%! Comparatively, major credit cards range between 0% and 15% for their interest rates. On a small balance, the interest rate may not seem like much. But the creditor and the store have other plans for your account. Within a few weeks you will start to receive email or mail outs with sales and specials. Mail outs and discounts will apply for birthdays and every holiday where you might buy something for yourself or someone else. More discounted stuff! The next thing you know, the balance has grown and you are paying interest. Perhaps at 20% interest, your balance is $1,000.00. Every month you are paying about $30.00 interest. How much did you REALLY save on your purchases?
Interest Free/Deferment Periods
If your friendly department store offers to open an account for you with 0% interest for, say, 6 months. Make absolutely certain the interest free period is or is not dependent on minimum monthly payments. Most creditors require those to keep promotional rates. Your objective should be to divide your purchase amount by the number of months you have to pay off the balance. Perhaps you have 12 months to pay off the $1200.00 balance. You would pay $100.00 per month to pay off without accruing interest. The next step to avoid paying interest on these special offers is to pay every month by the due date listed on your statement. Most creditors post a statement in the fine print that translates to the following:
“During the promotional period (interest free) if your payment is received after the due date, interested will be charged and the interest free period will automatically be over. Moreover, interest could be charge from the date of your purchase, not just from the date your payment was late.”
How much have you saved it his happens? You will actually end up paying more!
But I Have to Have it!!!
At this point most people have credit cards either from a department store or a major bank that issues Visa, MasterCard, Discover or AMEX. One of the largest markets for approval is college students who are unaware and limited on income because most don’t work full time and some don’t work at all. The facts do not change no matter who you are, there will be things that the American Public will or will not need to have but can and will buy with credit cards. The lesser of the two evils would be to charge purchases on one major card that is used to for all credit card transactions. These usually offer a lower rate then a department store card.
Should you decide to accept a store credit line, remember that this does count as an inquiry against your credit which can hurt chances for approval on later applications for credit. If you plan on buying a house or car soon after, it’s best not to open new credit. Finally, fore maximum benefit, ensure you know the terms of the promotional interest rates that are offered and pay off the balance by completion of that time period each time you use it. This is the best way to go if you are serious about maximizing your savings.