Lifestyle

Why you shouldn’t open a store credit card during the holiday season


Not long ago, I was at Home Depot with my mom getting some things she needed, like light bulbs and air filters. A friendly staff member greeted us with the store’s iconic orange apron.

She gave my mom the chance to open a Home Depot credit card and get $25 off every purchase — roughly the price of my mom’s entire cart. As my mom reached for the app, my credit card instinct triggered a strange movement similar to a panic attack. No one opens a store credit card with a $25 welcome bonus if I have anything to say about it.

Related: Why storing credit cards is (almost) always a bad idea

During the holidays, it’s especially easy to fall into the trap of selling a credit card at the store at checkout. Many retailers will give you a 10% or 20% discount if you sign up for the card on the spot. And while saving even $50 or $100 may seem tempting, there are many reasons to avoid opening a store credit card. In addition, there are shopping tricks (like purchase through an online portal) can give you an almost massive discount without having to take out hard credit.

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If you are going to open a new tab, choose the right one credit card rewards instead of the one at the store. The mileage, points or cashback you earn with these cards (including some free card every year) can be much more valuable than a one-time discount at checkout. They can also come with valuable sign-up bonuses that can be worth hundreds of dollars in cash — or thousands of dollars in free travel. In addition, their ongoing benefits can be valuable in the long run.

Why a store card might not be good for your credit score

Everyone knows the importance of a good credit score. It’s a metric that banks use to determine your creditworthiness when you apply for a car loan, home mortgage, credit card, etc. But not everyone recognizes the factors that go into scoring. your credit. Payment history is an important factor, which is why we always encourage you to pay your card balance on time and in full each month.

But another important factor (30% of your credit score, according to FICO) is your credit utilization ratio, which is the balance on your card divided by the total available credit on all your cards. .

FICO

In my experience, the credit limit you get on a store credit card is usually not much higher than the amount of your purchase. For example, if you’re spending $1,000, you can get a $3,000 line of credit. While your credit score is usually calculated as the amount you owe against the full line of credit on all your credit cards, sometimes creditors also consider usage on each of your cards. friend. In this particular example, the utilization rate for your new card account would be a whopping 33%, which could negatively affect your credit score.

Ideally, keep your credit usage under 10%. I always try to make 3% or less — which means I have to pay off big purchases quickly. Remember to never spend more than you can pay off and be considerate pay your balance before the billing cycle ends.

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Related: Credit utilization rate: What it is and how it affects your credit score

Use shopping portals and rewards card discounts at your favorite retailers

You don’t need a store credit card to save money or get discounts on shopping. For example, online shopping portals offer an easy way to earn tons of bonus miles, points or cashback at many popular retailers. We’ve seen deals like 15% cashback (or 15 Amex points per dollar) through rakuten on many popular retailers during Black Friday and Cyber ​​Monday, and such deals are sure to reappear throughout the holiday season.

Nearly every airline, hotel, or bank has some kind of shopping portal to help you earn rewards for shopping online. And today, many retailers allow you to shop online and pick up in-store. These portals are a really easy additional way to earn rewards for your purchases.

our reading guide to maximize online shopping portal to learn how to quickly check which portal is providing the best rate of return on your purchase.

The Best American Express card Go with Amex Offers, which are basically improved coupons that make it easy to earn bonus points or save money on in-store or online purchases. These targeted offers include offers like 20,000 bonus points if you reach a certain purchase amount, 10% off popular retailers, or a statement credit of more than $100 when you buy Shop at specific merchants. You can often combine an offer with other coupons or discount codes to get even more savings.

Here are some of my current Amex Deals. US EXPRESS DELIVERY

Bookmark our Amex Deals page so you don’t miss the latest deals – and learn how to stack multiple deals in How to maximize holiday purchases?.

bottom line

Instead of falling for a store credit card, use a shopping portal or rewards card offer to get the same savings.

You can always check out ours Best credit card siteas well as looking at better alternatives that offer long-term value. You’ll find travel credits and cash-back credit cards with a cashback of $750 or more once you’ve met the minimum spending requirements—some cards don’t charge an annual fee. These rewards are not as easy to earn as store card referral offers, but the rewards can be much better.

Also, check out ours Instructions to register for a bonus of more than 100,000 points, which we update regularly. From those rewards, you can reap value on the scale of hundreds of dollars in cash or thousands of dollars in travel. These welcome offers on some of the most respected cards on the market easily beat the $25 discount on signup.

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