by: Debbie Dragon

Most credit card users have at least one store brand or private label card. We have been lured by the discount for opening the card and/or the promo zero or low interest introductory rate. The question is, are these cards good to have or do they cause us more problems than they are worth? Let’s take a look at store brand credit cards.

Stores love to lure you into signing up to get their private brand credit card. Why you might ask? The answer is simply that they make a lot of money off their store brand cards. Store cards are easier to get than a typical credit card, as they do not go through the same screening processing of typical credit cards. They do a quick credit score check and voila, you are instantly approved to use your card today. You are now more tempted to purchase an item or items you would not have, and they take in more money.

Their earnings on you signing up for their card do not stop there. Store brand credit cards tend to carry high interest rates, as much as 20% or even more. So, if you don’t pay off your bill each month, the store is cashing in on the high interest fees they are collecting. Even if your card starts at zero percent interest, be sure to read the fine print. Many times if you have not paid for your purchase in full by the promotion expiration date you are charged interest on your initial purchase, not on the remainder of the balance.

You credit score will also be affected when you open up a store credit card. This is something to consider ahead of time especially if you are going to need to get some other type of loan in the near future. If you will need a car loan, will be looking to rent an apartment or change your auto insurance policy in the near future it might not be wise to open a new store credit card.

With the scrutiny today, and more and more businesses finding ways to use your credit score, you will certainly want to be cautious of how many store cards you open. In addition to the number of private store cards you open you should also be aware of your balance and your credit limit on each account. 30% of your credit score is based on utilization and because of this you want to keep a low utilization rate on each credit card. For example if you have a $1000 limit and have a $300.00 balance you have a 30% utilization rate, which is good. If however, you only have a $500.00 credit limit and you have a $300.00 balance your utilization rate is 60%, which is not good for your credit score.

There are other ways these store credit cards can also impact your credit score. For example, if you decide to open up a card just for the start up discount or interest promotion rate, then close the card as soon as you pay it off, your credit score will take a hit.

If you do decide to open up an account with a private label credit cards there are some things to consider. First, always check the fine print and know what the promotional interest rate is and what the regular interest rate is. Try to choose one that has a low rate. Also, some store brand cards can be used at multiple locations. These cards are more versatile and keep you from opening multiple cards in each individual store. Examples are K’mart/Sears and Gap/Old Navy/Banana Republic. Always use your card wisely, never charging more than what you can pay off each month. If you are a responsible shopper and debt manager these cards can sometimes be beneficial.

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