6 Reasons Why You Should Try To Avoid Store Credit Cards

Have you ever encountered an offer to sign up for a store credit card when you check out of a store? Unless something important is calling you, you do not mind being bailed up by an unsolicited offer, thanks to a huge discount they offer on your purchase. In a few minutes of a conversation, quick-thinking can miss several loopholes because of the way they are laid on thick. Subjected to tunnel vision, you sign a deal without realising that these cards are not what you think. Here are the reasons why you should store credit cards:

High interest rates

Store credit cards charge extortionately high interest rates, often justified by financial risks on the part of cardholders. High interest rates can cause you to rack up credit card debt if you fail to meet your obligations on time. These rates can go up to 30%. Carrying a balance every month means paying a lot more than the actual price of an item you buy. If you sign up for a store credit card, you should pay heed to interest rates. Make sure that you will clear your balance in full every month. Making a default will make you pay fees as well.

Limited use

A store card can be used only at the issuing store. You will have to apply for a card from a lending institution to use it outside the store. It can be a great hassle if you cannot juggle between both cards. You will more likely lose track of your payments, especially if you have other debts such as to pay.

Your credit limit will be low

Another drawback is that store cards come with a low credit limit. When you use your card, it will increase the credit utilisation ratio. The higher the credit utilisation ratio, the worse your credit score will be. It will have a far-reaching influence on your ability to borrow money at lower interest rates down the line. Ideally, the ratio should not be more than 30%. It is suggested that you maintain it at 25%.

Your credit score will automatically heal after paying off the balance, but make sure you pay it off before the balance is reported to credit reference agencies.

They charge deferred interest

Some store cards allow you to make big purchases like furniture, appliances and the like. Because of the high cost of such items, you may struggle to pay off the whole balance once and for all. Your issuing store will allow you to pay down the balance over a couple of months. Depending on their policy and the cost of an item you buy, the payment plan can vary from three to six months. No interest will be levied until then.

This facility makes it easier for you to fit payments into your budget, but it is associated with some risks as well. What if you fail to meet your obligation? You may lose your job, or your budget may be tight because of personal loans in Ireland.

You will have to pay the whole of the interest if you fail to clear your dues within the interest-free period. Interest rates will be extortionately high. It should not put you off from signing up for this kind of offer but do not throw caution to the wind. You can avoid interest by being paid on time.

Hard credit inquiries

Issuing stores run hard credit checks when you sign up for store cards. You should always confirm it from your issuing store the type of inquiry they will run. Hard inquiries will appear on your credit report and pull your credit points. If you already have a bad credit rating, your credit score will go down further. It will make it hard for you to apply for a loan at lower interest rates down the line.

Do not apply for multiple store cards at the same time because there will be a sharp drop in your credit points. Chances are you will fail to get approved, even for bad credit loans in Ireland. When the risk is too high, most lenders will straightaway refuse you a loan.

Impact on your credit score

Store credit cards work the same way as personal credit cards. Hard inquiries are one of the reasons that affect your credit rating, but that is a temporary effect. With an increased credit utilisation ratio, you are more vulnerable. However, you can avoid a damaging impact on your credit rating by adopting good financial habits.

The bottom line

Store credit cards should be avoided because of high interest rates. They can push you into an abyss of debt if you keep carrying a balance month to month. If you still want to use them, make sure nothing gets in your way when making payments.