This Is the Only Scenario Where I'd Open a Store Credit Card

During your holiday shopping, you may be offered an opportunity to open a store credit card. And for the most part, I'd tell you to say thanks, but no thanks.

Unlike traditional credit cards, store credit cards can only be used at the retail establishments that issue them. That's not necessarily so problematic. What is problematic, though, is that store credit cards are notorious for charging high interest rates -- higher than traditional cards. So you could really end up in a serious hole by racking up and carrying a balance.

For the most part, I've always held firm on saying no to store credit cards. But I do think there's one specific scenario where I would consider opening one.

When the savings are really substantial

Store credit cards tend to draw consumers in by offering a big discount on an initial purchase. For example, you might save 10%, 15%, or 20% on your initial card purchase, whether it's $200 or $500, when you open a store credit card.

I wouldn't open one of these cards to save 10% on a $60 purchase. But in the coming weeks, like many of my fellow consumers, I expect to be doing some holiday shopping. And it's conceivable that I might end up spending several hundred dollars at the same store.

If I can save, say, 20% on a $300 purchase, that's $60 off -- which is a lot of money. So in that case, I may be hard-pressed to say no to a store credit card offer.

The potential dangers of store credit cards

To be clear, though, I'd only open a store credit card if the offer was generous and if I didn't have plans to apply for a large loan, like a mortgage or auto loan, in the near term. See, each time you apply for a new credit card, a hard inquiry is done on your credit report.

Experian says that a hard inquiry will generally lower your credit score by less than five points. But you never know when a modest drop in your credit score will have you paying more interest on a large sum of money you're borrowing.

Maybe the mortgage lender you're working with offers its best rates to borrowers with a credit score of 780 and above, and opening a store credit card (or any credit card) will drop your score of 782 down to 778. In that case, you might actually end up with a higher interest rate on a very long-term loan.

I don't normally worry about minor credit score drops and I don't let them stop me from opening new credit cards. But that assumes I don't have a major loan application coming up.

Also, getting back to the issue of high interest rates on store cards, I'm someone who has never carried a credit card balance forward. Since opening my first credit card, I've always paid my balance in full. So for that reason, I'm more okay with the idea of opening a store credit card. But if you frequently carry a balance, then you may want to avoid store credit cards due to the potential cost of interest involved.

Consider those offers carefully

It can be tempting to open a store credit card when you stand to save a lot on a big purchase. But do be mindful of the high interest rates these cards tend to charge. And if you don't think you'll be able to pay your balance in full, don't open one.

Not only can opening a new credit card account cause a minor ding to your credit score, but carrying a larger balance on one can cause even more credit score damage. So you'll especially want to steer clear of store credit cards this holiday season -- and probably all new credit cards in general -- if you're making plans to borrow a large sum of money in 2024.