As summer wanes and crisp weather approaches, it’s time for a shopping trip to snatch up some chunky knits and over-the-knee boots. With the latest trends in-hand, we’re all bound to have a similar experience when the sales associate says, “You know, if you open a store credit card, you can save 20% on your purchase today.” While a discount is enticing, there are potentially negative impacts to your credit score to think about. Keep scrolling for everything you need to consider before adding a shiny new retail card to your wallet.
1. A new inquiry will ding your credit score.
When you apply for a new card, the issuer makes an inquiry into your credit history to ensure you are a reliable borrower. Each of these inquiries dings your score by a few points. This won’t have a large or long-term impact, but avoid applying for too much credit in a short period of time. Before opening a new card, consider your timeline for a new home, car, or other big purchase requiring a loan or lease. These will also require credit inquiries, and you don’t want them to happen all at once.
2. A new card will lower the average age of your accounts, which could hurt your score.
A longer credit history is good for your credit score, since it gives lenders more insight into your dependability as a borrower. Each time you open a new credit card, the average age of your history lowers. If you already have a long and favorable credit history, opening one new card isn’t a big deal. However, for younger people with a shorter average credit age, this is something to consider.
3. Retail credit cards carry high interest rates.
The most important piece of credit card advice I can offer is this: pay off your balance month to month. Every point, mile, discount, and perk is completely offset by the interest you’ll pay if you carry a balance! An average credit card has an Annual Percentage Rate, or APR, of around 15%. But more than half of all retail cards carry an APR of over 25%. If you pay off your card each month, this won’t matter because you will never pay interest. Unfortunately, the average person does carry a balance, so the APR is a major factor.
4. You may get a better return with another card.
Retail cards are enticing because of the store credit they offer for each dollar you spend. I mean, who doesn’t love getting Nordstrom Notes in the mail? However, you can often earn a higher return when you spend money with another card. Let’s take the Citi Double Cash card, for instance. This is a no-fee card that offers 2 points for every dollar you spend anywhere, on anything. And you can redeem those points for cash, which is more versatile than store credit. The Chase Freedom is another no-fee card I recommend. It offers 5% back on rotating categories including restaurants, grocery stores, gas stations, wholesale clubs, and even department stores. My personal favorite and most-used card is the Chase Sapphire Reserve. This one is totally worth the annual fee if you have a high credit score and travel and dine often.
5. Sometimes a retail-branded card is worth it.
Some retail cards offer attractive points multipliers, plus other benefits — exclusive discounts, preview parties, personal shopping perks, and early access to sales. If you are a loyal shopper and find value in the VIP status a card offers, then it could absolutely make sense to open a card on your next outing. Happy fall shopping!