Why you should never open a store credit card during the holidays
In-store credit card promotions are common during the holiday season as shoppers select their Christmas gifts.
Retailers such as Macy’s, Target and Lowe’s offer discounts of up to 20 percent if you apply for a store credit card on the spot.
As Christmas bills mount, saving $100 may seem like an attractive offer, but there are factors to consider before you sign on the dotted line.
Store credit cards probably aren’t the best deal out there and can even hurt your credit score. according to The Points Guy blog.
Store credit cards can lower that all-important credit score because they often have a small credit limit.
Store credit cards often push promotions during the holiday shopping season
Credit scores are important because banks use them to assess creditworthiness when considering whether to give you a car loan, a mortgage or a credit card.
Credit providers like to see that individual transactions on a credit card are less than 10 percent of the card limit.
The lower the credit limit, the closer an in-store purchase is to exceeding it.
For example, if the purchase you make is $1,000 and the card credit limit is $3,000, then the utilization ratio is 33 percent.
According to FICO, it is also recommended that you keep your total credit utilization for all your cards under 30 percent.
If store credit card usage is low compared to banks or other major lenders, this could also be a factor in increasing that usage.
Instead of using store credit cards, The Points Guy recommends using shopping portals such as Rakutan, Mr Rebates and TopCashback and credit cards that offer rewards and discounts. These can often lead to greater savings.
“Online shopping portals provide an easy way to earn tons of bonus miles, points or cash back at many popular retailers,” the site explains.
According to the publication, Rakutan is offering 15 percent cashback at popular retailers during Black Friday and Cyber Monday.
Most airlines, hotels and banks have their own shopping portals that allow you to earn rewards when you shop online.
The Points Guy also recommends using a rewards credit card, such as those offered by American Express.
“Targeted offers include deals like 20,000 bonus points when you reach a certain purchase amount, 10 percent off popular retailers or $100-plus statement credits when you shop at specific merchants,” the publication explains.
Credit card experts recommend using rewards cards and shopping portals instead of store credit cards
Amex is the most popular card provider in the US, but it is not accepted everywhere.
In August, eBay stopped allowing customers to use American Express cards.
The online marketplace blamed the “unacceptably high fees” imposed by Amex for processing transactions.
eBay isn’t the only company AmEx is dropping above its fees to retailers, which can be as high as 4 percent.
Retail giant Costco also left the card business nearly a decade ago. Smaller restaurant chains have also stopped using the payment processor.