Drawbacks of Retail Store Credit Cards – Retail store cards are easy to get and sometimes have some benefits like discounts on store purchases and easy issuance of credit, that might lure you to apply for one,but before you do that, think about the drawbacks of the card as well.There are a few disadvantages of accepting a big chain retail card that you may have not thought about yet.Read on to know more.
Drawbacks of Retail Store Credit Cards
Retail Credit Rating – One of the biggest disadvantages of owning a retail store card is that they sporadically report to the credit bureaus.Most of your timely payments towards your card balance even though reported may not have a significant impact on your credit score.One of the ideas behind maintaining regular payments towards credit cards is so that you get some positive juice going towards bettering your credit scores with the three major bureaus.
It seems that your credit score gets only marginally affected by your payments made towards lowering your balance on retail store cards.A possible reason is that the bureaus do not give enough importance to big chain stores because they are not financial institutions.
Exorbitant APR – The interest on these retail cards is extremely high with the upper reaching even 35% on some cards.So what is the reason for this high interest? I mentioned earlier that these cards were easy to attain and are usually given without any pre-checks on past credit history.These are gambles,similar to risky loans that lender give low income groups but charge high interest on the same – by doing this,the lenders collect their principal mount fast and even if a small percentage of borrowers default on payments,the lender will not lose much.
In the case of retail chains,the idea is the same- collect the principal amount easily by charging high interest,thereby negating any loss,plus the added advantage of getting the consumer to shop at the store and thereby increase sales.
Short line of Credit – If having a high APR on your card is not bad enough,imagine that coupled with a low credit limit.Again this is in direct consequence of the retail store having le trust on the customer.These retail cards are easily issued with almost no background checks and with high interest.Even if the customer has bad credit or no credit it is issued with the hope that a low line of credit will not let them abuse the spending privilege of the card.
These low income – high risk customers who use these cards have poor financial planning or are new users of cards and setting a lower limit on the card might dissuade them from spending more than they re capable of repaying.Some credit limits are as low as $300.This insures that they are trapped in a loop of endless monthly payments,because by paying the minimum due,the balance on the card stay almost the same ad marginally reduces.Also the tore benefits by them shopping there.Its a win – win situation for the big chain store.
Retail Usage and Benefits – It may seem that most retail cards Cavour the retail issuer more than the card user.The high interest,low credit and fine print make it seem like a one sided bargain.Most first time users are lured into signing up for it with the promise of huge savings in the department store,but one thing that the card user does not realize is that this card can only be used to purchase in store products and will not even buy you a coffee outside of that retail store.You cannot use it for gas,online shopping,ticketing or restaurants.There are severe limitations and ultimately the card user will come to the conclusion that it is lacking in benefits.