Should you apply for a store credit card?

The cashier is offering you 20% off for signing up. Is it worth it?

By Stacy Johnson Oct 13, 2010 4:46PM

This post comes from Stacy Johnson at partner site Money Talks News.

With holiday shopping season soon in full swing, you're likely to encounter an offer like this: Sign up for our store credit card and receive a 15% to 30% discount on today's purchases.

Should you jump on it?

That's the question I recently got from a reader:

Lately I've received tempting offers on credit cards. One such was from Sam's Club. At the time of our family's last visit, we were offered to save $40 on that day's purchase if we signed up for a Sam's card. My wife received a similar offer, although I can't remember from where. Of course we signed up for the Sam's card and immediately paid the balance and closed the card. Our question is, how does this procedure affect our credit score? If these offers continue in our favor, is it a good idea to accept? -- Conley family

The answer to your question, Conley family, is it sounds as if signing up for that offer was a good deal for you. But that doesn't make it the right answer for everyone. Whether you should sign up for a store's credit card in order to get a one-time discount depends on both who you are and your current circumstances.

Estimate your credit score for free

Here are three reasons why you shouldn't take advantage of store credit card offers, and three you should.

Three reasons to reject the offer:

It could hurt your credit score. Those who grant credit don't like to see you applying for more -- it makes them nervous, and causes your credit score to drop. Depending on the strength of your credit history and score, the amount of the ding could be both minimal and temporary. But if you're applying for a mortgage or other loan soon, don't take chances.

Bing: How does applying for a credit card affect your score?

For example, according to this page of credit score developer Fair Isaac's website, a 760 credit score would qualify you for a 3.8% mortgage, while a slightly lower score would get you only 4.2%. On a 30-year, $300,000 mortgage, that results in an extra $38 a month -- for 360 months. Total cost of that $40 store discount: $13,680.

It's one more thing to worry about. The more credit cards you carry around in your wallet, the greater your:

Temptation to spend money you may not have.
Hassle if your wallet gets stolen.
Odds of an increasing inflow of junk mail.
Chances of having your identity stolen.

In short, why do anything to make your already complicated life more stressful?

Department store cards generally stink. Many department store cards are among the worst -- interest rates higher than 20% are the rule rather than the exception. If there's even a chance that you'll keep one of these cards and carry a balance on it, your one-day savings will quickly be eaten up by finance charges. Which is, of course, the precise reason that these promotional offers are made in the first place.

Three reasons to seize the savings:

You're not the person the store hopes you are. Note what the reader above said regarding the way the family dealt with the Sam's Club card: They "immediately paid the balance and closed the card."

Bing: How does closing a credit card affect your credit score?

This obviously is not what a store is hoping for. If you have the discipline to pay the card off completely and close the account, why not take "free" money? I put quotes around the "free" because it isn't really free. You have to fill out an application, and closing the account requires writing a letter, not just cutting up a card, as well as following through to make sure the account is indeed closed. But if you have the extra time -- and aren't immediately applying for a loan -- why not pick up what they're putting down?

But do keep in mind that applying for new credit or too much credit will likely have a negative impact on your credit score. So pick your deals -- don't try to set the record for most cards applied for.

Bing: Other effects of a bad credit score

You want the card anyway. It's ironic that the same person who may get turned down by one credit card company might get paid for accepting plastic from another. If you're trying to build or rebuild your credit, here's an opportunity to establish a new credit line and save a little money in the process.

You might also be a frequent shopper at that store and get other perks for being a "preferred customer."

The amount of money is significant. These offers are often for a percentage off that day's purchases. If you walked into the department store to buy a $2,000 entertainment center, getting 15% off is $300 -- a lot of coin. Provided you're not applying for a major loan in the near future, that's not a bad return for the time you'll spend filling out the application and later closing the account.

Just be sure you're buying only what you came in for and nothing else.

More from Money Talks News and MSN Money:

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consumer guidecredit cardsMoneyTalksMoneyTalks NewssavingsshoppingStacy Johnson

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