Well, it’s October 5th, which means Christmas decorations will start going up in my neighborhood in about 2 weeks. That also is right around the time the retailers will start putting their holiday decorations up as well. And, with decorations come sales. And, with sales come offers to save “even more” by opening up a retail credit card.
The topic of retail credit cards has been a hot one lately now that the CFPB has suggested that they’ll work to change the CARD Act rule that requires you to have “individual” income in order to be able to get a card. Think of all of those non-working spouses who can’t get retail cards right now and save 10-20% on their same day purchases.
Of course, I’ve been very vocal about the fact that adults who want to get credit cards should be treated like adults and be allowed to get a credit card if they’ve got access to household income. I’ve also been very vocal about the dangers of falling for those retail store saving’s offers during the holiday season. My two positions seem contradictory, but they really aren’t. I’ll warn you about the dangers of retail cards and if you still want to get one then you should be able to do so. It’s a new twist on a popular seasonal story.
Why do I dislike retail store cards? It’s simple, they’re subprime credit cards with one size fits all terms. The credit limits on those cards are always very low relative to the limits on your general use credit cards. The interest rates are almost always in the mid 20s, regardless of how good your credit scores are. And, you better get used to shopping at one chain of stores because retail cards have no other usability.
Don’t get me wrong, if you have other credit cards with high limits it nets out the negative impact of low limit cards. And, if you never revolve a balance then interest rates become meaningless. And, you do get coupons and store discounts almost non stop if you’ve got a retail store card. So, there is a right way to use those products. There is, however, a wrong way.
If you carry a balance then whatever discount you received for opening up a new card is either diminished or eliminated. And, you can more easily leverage the card to a point where your credit scores suffer. Finally, if you like shopping at different stores then you’ll need retail cards for them as well.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.