December 15, 2009
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Beware Store Branded Credit Cards, Pt.3
Put on your thick skin and say "no".There are a number of ways opening up new credit card accounts can negatively affect an individual.
• Each time there is an inquiry on your credit report, you score drops a few points. Inquiries remain on your credit report for two years and are a contributing factor in your credit score calculation for the first 12 months.
• One variable in your credit score is the length of time of your credit history exists. A longer history is more favorable. New accounts reduce the average age of your credit history; therefore, opening a new credit card account could lower your score approximately 15 percent.
• There is a significant effect on credit scores when you utilize more than 30 percent of your available credit. Most store brand credit card accounts typically carry low credit limits. It doesn't take much to run up that $500 or $1,000 limit. Major network cards typically come with higher credit limits and would not have the same harmful effects.
• Hidden terms in the credit cards fine print often stipulate that if the balance is not paid off by the end of an interest free promotion, you will end up paying the interest retroactive from the beginning of the promotion. Sears and Best Buy are good examples on how this may work. The end date on these promotions do not coincide with the monthly billing cycle but rather it begins on the day you make the purchase and ends on that same day in the designated month that the promotion ends.
• Most store branded credit cards have higher interests rates. If your payment is late, it can hurt you in two ways. First, your credit score could drop from 90 to 100 points if you are 30 days or more late and second, your interest rate will be increased. An increased interest rate means an increased minimum payment due and less money applied toward reducing debt. This is a double whammy no one can afford.
It's easy to see that those store branded credit cards can cost you a whole lot more than you bargained for. The best advice I can give you is, put on your thick skin and say "no" to those pressured sales pitches.