A Bargain That Could Cost You

It’s tempting to open a store-brand credit card when the cashier is promising you a hefty discount and a chance to delay payments on a pricey item. While those seem like sound financial moves, the new card could actually cost you money by putting a dent in your credit score.

Jim Randel, author of The Skinny on Credit Cards, cautions that every time you apply for a card your credit report is checked, taking a nick out of your credit score because the application “creates the appearance that you may be loading up on debt.”

Experts estimate that one inquiry about a store card can lower your score by two to five points. “Apply for several store brand cards in a couple of months, and you will shave as many as 20 points off your credit score,” Randel says. And if your application is accepted and you actually open a new charge account, it will cost you an additional five to 15 points.

A very expensive point

Mortgage broker Todd Huettner says losing even one point from your credit score can cost you thousands of dollars in the long run.

“Interest rates for mortgages, home equity loans, or even car loans go up with every 20-point drop in your credit score, starting with scores lower than 740,” Huettner explains. “Having a score of 679 versus 680 can cost you hundreds annually in interest.”

There’s another reason a store-brand credit card can cost you far more than what you’ll pocket in instant savings: They usually carry a higher interest rate than comparable non-branded cards such as Visa or American Express.

Suppose you save 10 percent on a $100 pair of shoes, Randel says. The $90 final price, plus sales tax, is charged to your new account, which has a 21 percent annual interest rate. “If you make the minimum monthly payment of $10, the shoes will end up costing you about $107—$7 more than if you just paid the full price,” says Randel.

“The discounts associated with opening or using these cards are only worthwhile if you pay the balance off completely before accruing any interest,” he adds.

Questions to ask yourself

So before accepting a cashier’s offer to open a store-brand credit account, ask yourself:

• Does the store accept a credit card I already carry? If so, put on the brakes. Too many cards can damage your credit score.

•  Will having this account fuel my urge to splurge? Easy access to a new line of credit may derail your budget train, especially if you’re an impulsive shopper.

• Am I planning to buy a car or house in the next six months? If so, don’t open any new credit card account of any kind, as it is likely to take your credit score down a notch. This could cost you dearly in interest you are charged for your major purchase, or may even prevent your approval for the financing.

• Do I have the money to pay the charged amount in full before any interest is due? If not, don’t open the account. You’ll probably spend more in interest than you saved at the register.

Gina Roberts-Grey is a writer in Baldwinsville, N.Y.