| January 17, 2018
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We've all been there, at the check-out counter when the cashier asks "Do you have our rewards card?". Unless your answer is yes, you get the next line of "You could save 15% on your purchase today, plus rewards and discounts moving forward if you open one today. Would you like to save 15%?" We are all preconditioned when we hear something resembling "save money" to say "Yes, sign me up!" but these cards aren't always the great deal that they seem. There are a few pros and cons you should balance before signing yourself up for that initial savings.

The biggest advantage and the most appealing draw to opening a store credit card is what I just mentioned, a significant initial discount on the purchase of some merchandise. In an attempt to get you to open a card, many major retailers today will offer an initial discount off of the purchase you make at the time of opening the card. They generally will offer this discount to consumers regardless of how much the purchase is. If you are making a big purchase at the time, you could actually end up saving hundreds of dollars off of the initial cost. That is hard to say no.

Another big draw lies in the second half of the sales line you get at the checkout counter, the idea that you will continue to receive discounts and other perks that are not available to other consumers. In many situations, a retailer will add you to an exclusive email and promotional list. This list provides discounts on new merchandise, while other consumers who are not part of the list, will still have to pay full price. In other situations, you will have access to merchandise at a discount before it is reduced in price for other consumers. Keep in mind, many of these stores allow you to join these lists and receive discounts without the credit card. If they are only asking for your email, there isn't much harm besides a possibly crowded inbox. That is not the same as signing up for their rewards credit card.

Many people, who open store credit cards, could find additional benefits in the form of better customer service. When you open up a store credit card, you may be treated better and receive customer service perks that are not available to other consumers. Some of the most common perks include free expedited shipping, the ability to return products after they have been opened and without a receipt, and even more personalized service when you are in the store or access to a quicker customer service line.

All of these reasons contribute to the crowded wallets many of us have with various store credit cards, but it's important to be aware of the risks. A very obvious risk or disadvantage of some of these store credit card is that the costs associated with these cards are extremely high. For those that are opening up standard credit cards, the interest rates available to consumers with good credit scores are typically a little bit more than 10%. With store credit cards, the interest rates are often more than 25% even if you have great credit. Furthermore, if you do not make payments on time, you could be hit with extremely high fees and charges. Most people don't take a look at this fine print before signing themselves up.

The other disadvantage of a store credit card is the use of these cards is naturally very limited. With traditional credit cards, you will be able to use the credit card at any merchant that accepts this type of card. In most situations, this means you can use it at thousands of different traditional and online stores. Store credit cards can only be used at the specific store. This makes it a very limited form of consumer debt. The number of credit cards you open can affect your credit score, so if your credit score is going to take a hit, you might prefer it to be with a card that has a wider berth than just at a single store. Even if you think you can open an account just in the moment, and plan to close it a few days later, your credit score doesn't have that short of a memory.

The third disadvantage of a store credit card is people tend to overspend unnecessarily. When you have a credit card specific for an individual store, you may naturally want to spend more money than you otherwise would as an attempt chase additional perks and rewards. This can quickly lead to overspending and the accumulation of expensive and high-interest debt while all you have in return is some merchandise that you did not otherwise need or want.

Overall, when you are considering getting a store credit card, it is important to determine how all the pros and cons fit into your lifestyle. If you are very loyal to a store already, and expect to continue to spend at that store, then the store credit card could be a great financial option. However, you need to be very aware of the high costs associated with being late on payments or accumulating any debt. Make sure you set a high standard for what makes it into your wallet, because not every rewards credit card is rewarding to your financial lifestyle.

This content created by Gary Scheer in conjunction with Fusion Capital Management.

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