Every time I purchase something from a Department Store, they ask me something similar to “Would you like to apply for an in-store credit card? You’ll save 20% off your entire purchase today!”. I, of course, always say no. In fact, I try to make an attempt at a short reason why I would never do this. Time is typically not on my side as there are usually other customers behind me already in line.
Okay, back to the reason for this post. Saving money. In short, Department Store credit cards are some of the single worst hits your credit score can take. Regardless of your ability to pay them on time, use them often, etc. Although they are a quick and easy way to start to establish a credit rating, I would always advise anyone using credit cards to understand the impact they have on your hard earned money in the long run.
Assume you save 20% on that $100 purchase. That will save you $20. Unfortunately, this will affect your credit score in a negative way. Next, you purchase a home and borrow $200,000. Because of your lower credit score, instead of getting that 3% interest rate, you get a 4% interest rate (this is a very simple example). Assuming you pay your 30 year (typical) loan off; over the life of your 4% interest rate loan on your home, you will pay $143,739.01 in interest whereas with a 3% interest rate on the very same loan you will pay $103,554.90 in interest. That’s a difference of $40,184.11. Now, was that $20 saved at Macy’s really worth it? I think the answer speaks for itself.
This applies to any and all purchase made in the future. Consider home loans, car loans or any large price loans you make and the long term effect these Department Store savings have on your wallet.
So, next time a Department store wants you to save a small amount of money on an in-store purchase, take this into account.