Claudia Buck

Resist pitches to sign up for department store cards at checkout, experts say

Black Friday may be just a few days away, but it’s abundantly obvious that the holiday shopping season is well underway. Online deals are popping up everywhere, retailers are trumpeting their get-it-now specials and announcing their earlier-than-ever Thanksgiving Day openings.

Shoppers are heeding the call. A recent Nielsen survey found that nearly 25 percent of shoppers surveyed said they had already started their holiday shopping – in September.

Regardless of when they trek to their local retailer, for many consumers, one of the biggest dilemmas they’ll face this shopping season happens right at the cash register: “Do you want to open a (insert store name) credit card and save (insert amount) percent today?

Whether it’s J.C. Penney or Macy’s, Best Buy or Sports Authority, major department stores often dangle enticing discounts if you’ll open the store’s credit card on the spot.

And that’s the problem: That on-the-spot decision may not be the smart one. To get some perspective, we talked with Gerri Detweiler, director of consumer education for San Francisco-based Credit.com. Here’s an excerpt:

“Getting pressured by a store clerk is a common phenomenon,” Detweiler said. “The biggest thing is we don’t know how to do the math quickly in our heads. We think 20 percent off, that’s great. We don’t necessarily translate to how much we’ll really save and weigh that against the potential cost to our credit.”

Certainly, it’s not just a seasonal occurrence. Many retailers give incentives to employees – year-round – to offer store cards to consumers. Detweiler said it happened to her this summer while out shopping at a major department store, when the clerk repeatedly asked – nine times by Detweiler’s count – whether she wanted to open a store card and save a percentage on her current sale.

There’s no question that getting a 10 percent or 20 percent discount on bagloads of holiday purchases is tempting. Some retailers extend that first-time discount for another 24 hours, which can be a temptation to spend more than you intended. Instead, you might be able to find coupons or online deals that can accomplish the same discount without the need for opening another credit card.

Why it’s worrisome

Any time you open a credit card, the retailer runs an inquiry with the three credit reporting bureaus: Experian, TransUnion and Equifax. Those inquiries can ding your credit score, the three-digit number that determines what you pay for consumer loans – and credit-card interest rates.

If you open multiple new accounts in a short period of time, it will “very likely” drop your credit score,” said Detweiler, noting that too many cards appear to credit bureaus as a risk factor. And if you carry a balance on those newly opened cards, there’s more of a potential hit to your credit score.

For most people, it shouldn’t be a big drop, Detweiler said, but it could be significant if you’re in the midst of a big transaction, like a mortgage, where even a few points could make a big difference.

“If you plan to buy a house in the spring, I wouldn’t open a new retail card this holiday season, just to be safe. You don’t know what the impact on your credit score will be.”

Not always a bad deal

Getting a store credit card isn’t always a bad idea for every consumer, of course. Detweiler said she opened a Kohl’s store credit card this summer while out back-to-school shopping with her daughter.

With armloads of school clothes and other items, Detweiler said she was willing to open the card to get the immediate discounts, as well as obtain future coupons and deals from a store where she shops regularly.

Also, if you’re making a major purchase, like new kitchen appliances at Home Depot, Sears or Lowe’s, for instance, a one-time purchase with a card could make a huge dent in the overall price tag.

This year, the Credit.com website evaluated and recommended five store credit cards as having no annual fees and best rewards: Best Buy “Reward Zone,” Kohl’s, Lowe’s, Wal-Mart, Victoria’s Secret. In 2013, it recommended the Target, Gap, Costco, Pottery Barn and Amazon cards.

But you do need to be aware that you may be acquiring a card with higher-than-normal interest rates. The Kohl’s card, for instance, charges a 21.9 percent annual percentage rate (APR).

As an alternative, personal finance site NerdWallet.com suggests that consumers use a credit card that gives discounts at all department stores, rather than just one. Among its picks: Chase Freedom, Discover and American Express Blue Cash Card, which offer 5 percent off charges in rotating categories.

The best advice: Be strategic. Think about it in advance and check out the store’s offer before you’re facing the smiling clerk ringing you up and offering 20 percent off.

As Detweiler notes: “When you’re standing at the cash register is not a good time to make a decision.”

Leave ’em home

And one last holiday tip on shopping with credit cards: Carrying a walletful of plastic can be risky any time of year, but especially during the holidays when people are hurried and distracted.

If you do use retail cards, only carry those you know you’ll use that day. That way, Detweiler notes, if your wallet is lost or stolen, “it’s easier to report a couple cards stolen than all of them.”

Call The Bee’s Claudia Buck at (916) 321-1968 or read her Personal Finance columns at sacbee.com/claudiabuck.

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