Of course, the 10 percent to 20 percent discounts that come with the store card on the goods you're buying can be tempting, especially this year when many people are trying to stretch their holiday shopping dollars. But if you don't typically pay your credit cards in full each month, you should decline the cashier's offer. And of course, before you sign up for any credit offer, you should read and understand all the terms and conditions of the account—something you might not be inclined to do with a long line of shoppers waiting impatiently behind you.
Here's the good and bad of store cards:
Interest rates can be wickedly high. For example, Macy's store card (which gives you 20 percent off your purchases for two days when you sign up) comes with an interest rate of 24.5 percent compared with a national average for credit cards of 12.81 percent as of Nov. 12, according to LowCards.com. If you miss a payment, any savings you get for opening a store card could quickly evaporate at such high interest rates.
• Opening a card will temporarily ding your credit score by only a few points, but opening a bunch of cards at once could have a real effect on your credit score.
• If you start using the card quite a bit it can lower the amount of rewards or cash you earn on your primary credit card.
• You might spend more than you'd planned, just to take advantage of the discount. And having a retailer credit card with rewards may entice you to spend more at that particular retailer, instead of shopping around for the best price.
• Store cards may not have the same consumer protections as credit cards. However many retailers offer both a store card and a Visa- or Mastercard-branded card that may give you some of those protections.
• You can get a discounts of 10 percent to 20 percent on your initial purchases.
• If you frequently shop in the store—and you always pay your bills on time—you may be able to build points towards future purchases, get advanced notice of sales, or gain access to insider sales. But some retailers offer rewards or loyalty programs that don't require you to sign up for credit cards.
• Store cards are easier to qualify for than general-purpose credit cards. So if you have limited credit, opening an account with a retailer is a decent way to build a credit history. But don't cancel the card immediately. You want to establish a long credit history, so if you're worried about overusing the card, cut it up, hide it at the back of your wallet, or leave it at home.—Chris Fichera