Whether buying or leasing a new or used car, here are some things to consider:
Store-branded credit cards have never gotten much respect -- often for good reason. The sky-high interest rates and short grace periods that often accompany the cards don't do consumers any favors. And because they're often touted as a quick way to save 10 percent or 15 percent on a purchase, people rack them up quickly, to the detriment of their credit scores, says Scott Crawford, co-founder of DebtGoal.com.* "Because they're a hard inquiry on your credit file, which can cost you about 30 points on your score, taking out these cards can drive down your score pretty significantly," he says.
That said, there are times when a store card may be a boon. If you're a savvy, responsible shopper who pays bills on time and in full, you might be able to reap significant benefits from store cards. Here are four reasons you might want to give a store card a second look.
1. You need to build (or rebuild) your credit. If you're someone with a "thin credit file," or you're trying to start fresh after a bankruptcy, your options are few. A crummy economy likely means that major card issuers will be even more skittish about extending credit to risky borrowers. In some cases, a store card may be one of your only options. "If you're trying to build your credit, the typical route has been to get a store or gas card," says Liz Weston, author of "Easy Money" and "Your Credit Score." "Traditionally, those have been easier to get. Though that's not always the case, it may be worth looking into." Once you've built up a few months' history, though, she recommends branching out into a card from a major issuer.
2. You can save big on a one-time purchase. If your purchase is in the thousands of dollars -- think furniture and remodeling projects and supplies -- that 10 percent discount can make a big difference. "If you've got excellent credit, you're not going to be in the market for a new loan, and you've got a purchase where the savings from the card would be more than $100, go for it," says Crawford.
3. You buy from the store frequently (and will use the coupons and perks). A one-time savings of $10 or $20 usually isn't worth a credit inquiry and the hassle of filling out forms. That said, if the store is one that you go to regularly anyway, the deals and ongoing perks may be valuable enough for you to sign up, says Scott Bilker, founder of DebtSmart.com. "If the store has good prices, a lot of stuff you like, and discounts that you'll use, then having the store card is a good idea," he says. Some stores include deals such as free alterations and gift wrapping that may also be useful.
Before you take the leap, though, Bilker recommends doing some comparison shopping: You may be able to get the same perks just by signing up for a store newsletter or getting rewards from a regular credit card.
4. You can get interest-free financing. In addition to discounts, some stores may offer interest-free financing -- a perk that may be worth it if you're doing it for convenience, not necessity, says Crawford. "Interest rate concessions for six months or a year can be a great deal for big purchases -- as long as it doesn't get away from you," he adds. "The savings from interest-free financing for six months disappears pretty quickly if you pay 28 percent for a year after that."
By Erin Peterson Credit Cards.comSome additional things to consider
It's too easy to spend money when you have more cards. Kimberly Penney of Kent, Wash., never gets the store card. She says, "I don't want to be tempted to use it later on, so I just don't open it."
Opening a new credit card can ding your credit score rating. If you're not expecting to refinance your house or borrow money in the near future, that may not be big deal. But if opening a new account causes a 10-point drop right before you apply for a loan, it can cost you plenty. Andy Jolls, CEO of Videocreditscore.com, a credit scoring educational site, gives the example of saving $45 on your current purchase -- only to pay about that much more every month on your new home loan because you didn't qualify for the lowest interest rate. In a worst-case scenario, you could pay $15,480 more over the life of your loan just to save $45 dollars at the checkout counter. It's hard to think of a worse deal than that!
It's one more card to keep track of and have open. An open card, especially one opened with another person, can come back to haunt you years later. You should never have more cards open than you can easily remember and keep track of.
"It's one more card to worry about identity theft on," says Jolls. If anyone ever steals or forges your driver's license, for instance, they can go to the store, present ID, and use your account.
You'll get a more junk mail -- possibly even junk e-mail -- once you're a "preferred" customer. That's just more temptation. I know from experience the more ads I look at, the more I'm likely to find something I want. If I don't see it, I don't buy it. By Sally Herigstad CPA
