Should You Open a Store Credit Card This Holiday Season?

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  • Store credit cards can offer perks that help you save on your purchases, but there's more to consider when deciding whether to open one.
  • Opening and closing a store credit card can affect your credit score.
  • You probably shouldn't open a store credit card that has no long-term value to you.

Is this your ticket to holiday savings?

Holiday shopping can get expensive fast, and most people will jump at any chance to save a few dollars. Store credit cards can offer one way to do this. Opening one might qualify you for special discounts or rewards that you can redeem at a later date.

But just because a store credit card is an option doesn't mean you should open one. Here are four questions to ask yourself before making that call.

1. How's your credit score?

Store credit cards generally don't have high limits and you don't usually need excellent credit to get approved. It's possible for some people with fair credit to get approved with some cards. But if your credit score is under about 580, it might not be wise to apply for a store credit card.

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Every time you apply for a new credit card, the issuer runs a hard credit inquiry on your report. This can drop your score a few points. It's not a big deal if you get approved, but if you're denied, you just lowered your score for no reason. If you have any questions about eligibility requirements, you can always reach out to the card issuer to learn more about what kind of credit score you need.

2. Have you applied for any other credit cards recently?

It's usually best to open a new credit card no more than once every six months. This will limit the number of hard inquiries on your report. It will also help your average account age, which also influences your credit score.

If you have one or two credit cards that you've owned for years and then you open a few new store credit cards to help you with your holiday shopping, your average account age will drop significantly. And your credit score will follow suit.

3. What fees will you have to pay?

Many store credit cards don't charge annual fees, but it never hurts to check the terms to make sure you won't pay just to own the card. You should also look at the card's annual percentage rate (APR), especially if you think you might carry a balance. A high APR could cause you to rack up a ton of interest charges, and this could easily negate any benefit you get from the card's perks.

You can find this information in the cardholder agreement. This may be available on the card issuer's website or you can reach out to the retailer or the card issuer directly for more information. Keep in mind that the APR you're offered will depend on your credit score. Those with higher credit scores generally receive lower interest rates.

4. How much will you use the card?

Opening a store credit card might make sense if it's a store you shop at routinely. This way, you'll be able to earn rewards and redeem them all year round. But if it's a store you rarely shop at, it's probably not worth opening its store credit card. It'll just take up space in your wallet and be one more thing you have to keep away from identity thieves.

You may think about opening the card, using it for the holiday season, and closing it again. But closing credit cards can also hurt your credit score because it reduces your credit utilization ratio. This is the ratio between the amount of credit you have available to you and the amount you use each month. For example, if you charge $1,000 a month to a card with a $10,000 limit, your credit utilization ratio is 10%.

When you close a credit card, you're reducing the amount of credit available to you, which by default increases your credit utilization ratio. And the higher your ratio, the lower your credit score.

It's ultimately your call whether you want to open a store credit card. But it's important to base your decision on more than just the advertised benefits of the card. Think about the effect the card will have on your credit score as this will matter long after the holidays are over.

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