Credit is fine (when not abused). Discounts are great (provided they're for something you were going to buy anyway). Combining the two can be a combustible situation. And dangerous sparks start flying nearly every time I step up to a checkout counter these days.

The clerk innocently asks, "Would you like to save 15% off your purchase today?"

Who wouldn't!?

Well, you might not, especially considering the catch: To get the deal you have to sign up for the store's credit card.

6 ways that discount is costing you
Unless you really know how to play your cards right, that savings can cost you. Before you sign on the dotted line, consider:

  1. Store credit/charge cards tend to carry higher interest rates -- e.g. 20%-plus APRs -- than your standard issue bank credit card. One month of carrying a balance, and kiss that sweet signup discount so long.
  2. Every time you fill out an application for credit, Big Brother knows. The application is noted on your credit report, and while applying for a card tends to have a negligible impact (costing a couple of points or so), too many at one time can take your credit rating down a notch or two.
  3. Even if you use the card once, pay it off, and stash it in a sock drawer, that line of unutilized credit will factor into your credit score as long as the account is considered open. Too much available credit can raise red flags with lenders wary of being stuck with a deadbeat customer who may decide not to pay them back someday.
  4. Even if you use the card and close the account right away, it'll linger on your credit report for at least seven years. That's not necessarily a bad thing, just be aware that frequent opening and closing of accounts can look unattractive to the scoring system.
  5. Store credit cards do not carry the same dispute regulations as general-use credit cards. If you're not happy with your purchase, you likely will not be able to stop payment or enlist the lender to resolve the issue on your behalf.
  6. Though many store cards offer their own rewards programs for cardholders, amassing points (or Banana Bucks, or whatever Banana Republic calls its chits) may rob you of getting airline miles or cash-back perks offered by the other cards in your wallet.

On the other hand ...
That said, there are a few decent things about store cards worth mentioning. The plusses, according to CreditCards.com:

  1. Store cards are easier to qualify for, so if you're trying to build credit and have been turned down by a standard card, a store card can get you over the first hurdle of establishing creditworthiness.
  2. Related to building credit, since most store cards are serviced by major banks, they tend to report promptly to credit bureaus. Remember, no one is required to report credit activity to the bureaus, so sometimes the gossip is welcome, particularly if you need someone to brag on your behalf.
  3. A lost or stolen store credit card is of limited use to a purse-snatcher. Their shopping spree is confined to that store's locations. As with any missing card, report the theft, pronto. Yes, no matter how many Banana Bucks they're racking up on your behalf.

Finally, I'll never forget when I was offered a store credit card to save 15% on a $1.99 purchase. I dug the 29 cents out from the bottom of my purse and told the clerk that I preferred my do-it-yourself discount plan.

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