Vision Credit Education, Inc.

Making a purchase at a new retail store often comes with an offer of saving 10% on your purchases that day. All you have to do is apply and be approved for a store card account. However, the cost of this new account could more than offset any savings you think you are getting.

Shoppers love to find bargains. An offer of an extra 10% discount can sound especially appealing. However, 10% off of a purchase of less than $100 barely saves you enough to spend at the food court after your purchase.

Costs of Opening New Store Card Account

Opening a new store card account will cause a hard inquiry to be applied to your credit report. It can lower your credit score anywhere from 1 to 5 points just for applying for the account. While this may not be enough of a drop to make a big impact on your creditworthiness, it could be just enough to drop you out of a scoring range where you are eligible for preferred interest rates on a major credit purchase.

Another way that a new store card could cost you is if you maintain a balance on the account. Most store cards charge interest rates of 18% or more, even for cardholders with excellent credit. This can add up to substantial finance charges over time.

Finally, if you make substantial charges to a store card account, you could easily utilize a high percentage of your available credit. This will reduce your credit score as your credit utilization rate increases. Even if you pay the account off every month, this increase in your credit utilization rate still influences your credit score in a negative fashion.

When to Open a Store Card Account

There are scenarios where you might wish to open a store card account. These include:

• High initial charges: If you are actually going to save a substantial amount of money, then the savings made through the offer could be enough to offset the impact of a slightly lower credit score. For example, a 10% discount on a purchase of $600 would save you $60. This is an amount that might make it worthwhile. Once you have paid off the card balance, it might be beneficial to close the account. While closing accounts does not normally help your credit score, closing a new store card account normally has a negligible effect.
• Establishing credit: If you are approved for a store card account and have been unsuccessful in opening a major credit card account, then you have the opportunity to build credit using that account. Keep in mind that store cards do not carry the same weight as a major credit card might, but they can still provide a baby step toward building a credit history. Just make sure that you maintain the account in good standing and pay off the balance in full each month after you use it.
• No major credit purchases planned: You can probably weather a drop of a few points on your credit score if you are not planning on making a major credit purchase in the near future. If you are planning on applying for a car or home loan within the next 6 months, then you should definitely avoid applying for any new store credit card accounts.

In the end, evaluate whether the costs of opening the account offset the savings. If you are not going to save much, then it probably is worth it to politely decline and make your purchase using cash or debit card.