Department Store Credit Cards
Are They a Good Idea?

You probably already have at least one department store credit card-or have been asked at a checkout line if you would like one. The sales pitch usually comes in the form of an offer to save you 10% on your first purchase. The application process is easy, and most people can be approved within minutes.

But even with these initial perks, is applying for a department store credit card a good idea?

The Pros
It's fairly easy to be approved, as store credit card issuers are far more likely than regular credit card companies to approve a customer who has less than perfect credit. Your credit score can improve as long as you don't exceed the maximum balance and you make sure you're paying at least the minimum amount every month. Ideally, you should keep your balance at no more than 20% of your available credit limit.

Also, many store cards offer exclusive savings, promotions, or coupons that aren't available unless you are a cardholder. Although access to special discounts may seem like a good deal, it may also tempt you into spending money on items that you don't need, and otherwise wouldn't have purchased without the discount.

The Cons
By far the biggest disadvantage with department store credit cards is the high interest rate. Most store cards are administered by third party banks, which tend to charge higher than normal interest rates- often between 20% and 30%. This can easily wipe out any cost savings and discounts that the store offers you.

With this kind of interest rate, if you're only making the minimum payment, the amount of accrued interest may be far greater than the cost of the purchased item. And if you have a store credit card, it can be all too tempting to use it for items that you don't really need and cannot comfortably afford.

Final Analysis
Department store credit cards are undoubtedly popular-many shoppers have more than one of them. As with most things, there are pros and cons. Don't be tempted by the initial savings and then carry an outstanding balance; in that respect, store credit cards are not a good idea.

If you currently have a store credit card with a high interest rate, consider a balance transfer to a low- rate credit card, like Orange County's Credit Union's new Platinum Visa® Rewards Credit Card. Rates are as low as 9.24% APR and you'll be enrolled in the FREE Rewards Program.

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