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In high school, I worked after school and on weekends as a cashier at a large retail chain. Despite my working less than half the hours of my full-time counterparts, I consistently managed to reach the top of our weekly credit card sign ups contests.

Store Credit Cards Are Bad

Most people knowledgeable about credit scores and credit cards would advise you against signing up for a store credit card. I am one of those people.

Store credit cards are bad for many reasons. Here are some of the biggest:

Credit score goes down from a new inquiry and average age of open credit lines decreasing, which can cost you money when applying for loans in the future

The new credit card gives you an outlet to spend more

If you do not pay it off right away, you will pay interest on a purchase that you might not have otherwise

Store credit cards generally have higher interest rates than other credit cards

How I Got People to Sign Up

I was 16 when I started working in the retail store. By the time I left when I was 18, I had learned a lot about selling credit cards, but knew little about credit. I just knew that if I signed people up, I would get a free DVD or be entered into a contest for something bigger.

My store offered a 10% discount to new credit card customers if they charged the purchase to the card. I didn’t waste my time offering a store card to someone making a $12 purchase, but I always offered it to someone making a purchase over $100.

I had logic in that decision. I was scored by my company on transaction time, so it was never worth wasting time unless you had a good prospect in front of you. Because of a basic understanding of marketing psychology, I knew that people in Greenwood Village, Colorado did not care about saving $3 when picking up a few things. However, when someone was buying all new bedroom decorations or filling the cupboards of a new kitchen, I could easily talk them into saving $10, $20, or $120 dollars (that was my biggest).

I did not ask people if they were interested in saving 10%, as most cashiers did and continue to do at that store. Most people don’t care about 10%. However, people do care about $34 on a $340 purchase. I always quickly moved the decimal and told them exactly how much money they could save. It almost always worked like a charm. My great performance either had something to do with that technique or my stunning good looks; I don’t think we will ever know for sure…

This Was a Huge Benefit for My Company

If you saved 10% on a $100 purchase and paid the card off right away and never used it again, you were a rare customer that cost the company $10 with no long-term gain. However, many new credit card customers would only pay the minimum. If you took one year to pay off that purchase at our rate (currently 22.9% APY), we would turn that 10% savings for you into a 12.9% profit for us. In that case, the $10 savings for you turned into a $12.90 cost. That is not huge, but if you use the card regularly, it adds up over time.

Late fees, interest, and the loyalty gained from holders of the store card made the 10% discount more than worth it.

What You Need to Know

Retail stores don’t do anything to help you, they do things to make money. The 10% off at the Target register, the mail coupons from Kohl’s to credit card customers, and the free drinks and candy at Walmart are all temptations to get you in the door, get you to spend more money, and make more money.

When you are offered a store credit card, do the real math. Will you pay it off right away or will you pay interest? Are you planning on a new car or home loan in the near future? Are you trying to build your credit score? Do you care if it falls?

Store credit cards are not a cut and dry “yes” or “no” for everyone, it depends on your situation. In most situations, you should not get the card. However, if you own a home, have a good card, have a large savings account, and don’t care if your credit score falls a few points to save some money on a large purchase, it might be a good idea for you. To get an idea of what you have going on right now, check out this option for a free credit score and analysis.

Your Stories and Questions

Have you ever taken a store credit card and regretted it? Do you have a store card that you love? Do you have any questions about store credit cards (or credit in general)? Please share and ask in the comments.

Image by stevendepolo