Tuesday, October 24th, 2017

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Play Your Cards Right

“OPEN A CHARGE ACCOUNT NOW and save 10 percent on today’s purchases.” How many times have you heard that line from a department store cashier? The higher the stack in your shopping cart, the more tempting it may be to lower your tab by simply saying yes. But beware the store-brand credit card: The immediate savings may not justify the downside.

Know the pitfalls

HIGHER INTEREST RATES. Many popular retail store cards carry annual percentage rates of 15-20 percent or more. If you don’t pay off your balance right away, the interest you incur may cancel out the savings gained from your on-the-spot discount. The bank credit card you already have in your wallet could have a much lower rate.

CREDIT SCORE BLUES. Signing up for a new card at every store you visit around the holidays may be your ingenious idea for saving a sleigh full of cash. After all, you can just pay off the cards and cancel them in January, right? Not so fast. “Applying for too many cards in a short period of time can hurt your credit score,” says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling. “And if you start off with bad credit and get turned down for the cards, your score may drop even lower.” A low credit score could keep you from getting the best loan rates on more important items like a car or house.

POOR PAYBACK. Many people can qualify for bank credit cards that offer cash back, airline miles or other valuable perks. Using a rewards card for everyday expenses can earn you cash rebates on purchases or points that can be used toward your choice of travel discounts, gift cards at major retailers or free merchandise. By comparison, most retail store credit cards don’t offer rewards, and those that do are usually limited to in-store discounts.

Calculate the risks

Store cards have had a bad rap for years, but that’s not to say they’re always wrong for everyone. Aside from the discount you get at the register, there are other reasons a store card could make sense.

CREDIT-BUILDING CRUTCH. Unlike traditional banks, retail stores have a history of issuing credit cards to just about anyone. That can be a good thing if you’re working to build or rebuild a positive credit history. “By showing that you can manage debt responsibly with a retail card, you can increase your credit score to the point where you can qualify for other types of cards or loans,” says Cunningham. But this makes sense only if you pay off your bill promptly.

In addition, she says, credit bureaus like to see that you’re not maxing out your available credit. So having a store card or two with low balances can put the debt-to credit ratio back in your favor.

MONEY FOR NOTHING. Some reports show that stores are starting to change their ways, offering lower interest rates and more attractive shopping incentives. So if you can get special discounts at a store you’d go to anyway, it might be worth considering. Just be sure the power of plastic doesn’t entice you to spend more than you would if you were paying cash.

Decide what’s best for you

What’s the bottom line? Store-brand credit cards aren’t a good substitute for a low interest general purpose card. But when used sparingly and responsibly, a retail card could be a useful tool in your wallet.

And as Cunningham cautions, no matter which card you use, the rules of maintaining good credit stay the same:

• Don’t take out more cards than you really need.

• Don’t charge more than you can afford.

• Always make payments on time.

USAA, a diversified financial services group of companies, is among the leading providers of financial planning, insurance, investments, and banking products to members of the U.S. military and their families. For the past three years, BusinessWeek magazine ranked USAA among the top two “Customer Service Champs,” highlighting our legendary commitment of providing highly competitive financial products for approximately 7 million members. For more information about USAA, or to learn more about membership, visit usaa.com.

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