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Wednesday, 6 June 2012

Good Store Credit Cards

Are Store Credit Cards GOOD or BAD?

Going through the checkout lane at a store, you have probably heard at least one pitch for a card issued by the company that might even come with a discount on your purchase instantly. Store credit cards are usually a bad idea for people with a good credit history and ready access to a credit card. People trying to rebuild a credit history would be wise to at least consider using a store credit card.

#Disadvantages

Of all types of credit cards, store cards usually have the highest annual percent yield -- usually 21 to 33 percent, according to the BCS Alliance. Also, the limits on these cards are typically far lower than that of a traditional credit card. This makes maxing out the credit limit and paying much more for purchases if you carry a balance much more likely.

#Benefits

The minimum requirements to obtain a credit line from a department store are much lighter than those of a bank. Most stores approve anyone who makes more $12,000, is at least 18 years of age and has a checking account. This makes store cards ideal for someone building a new credit history or rebuilding a bad one, because most store card creditors report to the major U.S. credit reporting bureaus.

#Possible Credit Score Harm

The low limit and fees that most department stores charge could damage your credit score as soon as the lender approves the application, because the fee might eat up a large portion of the card's limit. Credit utilization -- the ratio of credit used to credit available -- is a significant part of the FICO score calculation. If you receive a $500 limit with a $250 annual fee, you start off with a utilization of 50 percent -- dangerously high in most cases.

Tip:

Never carry a balance on the card from month to month, especially if you just sign up for the promotional discount. At the interest rates charged by most department stores, a month or two of finance charges can cost much more than whatever discount the company offers. Ask the creditor if he reports to Equifax, Experian and TransUnion -- these are the major U.S. credit bureaus. Unless he reports to all three, a store card does not build your credit history as much as possible.

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