Avoid the mistake of opening a store credit card this holiday season (Best Buy, Macy’s, Home Depot, etc.)
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Not long ago I was at Home Depot with my mom. Grabbing the few things she needed, like lightbulbs and air filters, she was greeted at the cash register by an employee in the famous orange apron.
She generously offered my mom the opportunity to open a Home Depot credit card and receive $25 off her purchase — nearly offsetting the price of her entire cart! As she reached for the application, my miles and points instincts triggered a motion uncannily similar to a Pete Rose dive into third base. Over my dead body is anyone opening a credit card with a $25 welcome bonus.
Around the holidays, it’s especially easy to fall for a credit card sales pitch at checkout. Many retailers will give you a 10% or 20% discount if you apply for a card on the spot. And while saving even $50 or $100 can seem enticing, there are many reasons to avoid opening a store credit card. Plus, there are shopping tricks (like making purchases through an online portal) that can give you nearly as big of a discount without the need for a hard credit pull.
If you’re going to open a new card, choose a true rewards credit card instead of one at the store. The miles, points, or cash back you earn with these cards (including certain no-annual-fee cards) can be worth much more than a one-time discount at checkout. They come with extremely valuable sign-up bonuses worth up to $750 in cash back, or thousands in free travel. Plus their ongoing benefits can provide plenty of value in the long term.
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Why store cards may be bad for your credit score
Everyone knows the importance of a good credit score. It’s a metric that banks use to determine your creditworthiness when you’re applying for a loan for a car, a house, a credit card, etc. But not everyone realizes the factors that go into calculating your credit score. Payment history is one important factor, which is why we always urge you to pay card balances on time and in full each month.
But another important factor (30% of your credit score, according to FICO), is your credit utilization ratio, which is your amount of card balances divided by your total available credit across all of your cards.
Let’s say you’ve only got one credit card with a $7,000 limit. You decide to open a store credit card at checkout because you’ll get 10% off your purchase. In my experience, the credit limit you get on a store credit card typically isn’t terribly much more than the amount of your purchase. So if you’re spending $1,000, you might get a $2,500 credit limit. Even if you pay the balance off in full, your credit utilization will get reported as 40% ($1,000 balance / $2,500 limit). This utilization ratio is terrible, and could negatively impact your credit score!
Ideally, it’s best to keep your credit utilization below 10%. I always strive for 3% or less — which means I have to pay off big purchases quickly.
Use rewards credit card tricks to still earn discounts at your favorite retailers
You don’t need a store credit card to save money or get a discount when shopping. For example, online shopping portals offer an easy way to earn lots of bonus miles, points, or cash back at many popular retailers. We recently saw 15% back (or 15x Amex points) through Rakuten on many popular retailers during Black Friday and Cyber Monday week — deals like that will surely pop up again during the holiday season.
Nearly every airline, hotel, and bank has some kind of shopping portal to help you earn rewards when shopping online. And nowadays, many retailers allow you to shop online and pick-up in-store, so these portals are a really easy extra step to earn rewards for your purchase.
Many of us try to use the Chase Shopping portal whenever it makes sense. But read our post on Cashback Monitor to learn how to easily check which portal is offering the best return rate for your purchase.
The best American Express cards come with Amex Offers, which are basically souped-up coupons that help you earn easy bonus points or save money on in-store or online purchases. These targeted offers include deals like 20,000 bonus points, 10% discounts, or $100+ statement credits when you shop at popular retailers. You can sometimes combine an offer with other coupons or discount code to get even more savings.
If you’re so agreeable that you’ll open a credit card on the spot at checkout, go to our best credit card offers page. You’ll find travel and cash back credit cards that come with $750+ in cash after meeting minimum spending requirements — with no annual fee! True, the bonuses aren’t as easy to earn as store card intro offers, but the payoff can also be 30x better. That’s right, in many cases, you’d have to open 30 store cards to get the same value as opening one single card from our best offers page.
Also check out our Credit Card Bonus Tracker, which we update whenever we see a ludicrously high welcome bonus. You could get many hundreds of dollars in cash, or literally thousands of dollars in travel. Subscribe to our newsletter to become a pro in no time.
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Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)