It's a great feeling to get a "bargain" when shopping. That's something all marketers hope for when offering retail credit cards to consumers. Discounts are great, but there is a down side of accepting these deals too.
In this article, we're going to help answer the question: Is it a good idea to accept retail credit card offers? As part of that discussion, we'll first talk about the types of offers in the marketplace today. Next, we'll explain the reasons why companies choose to provide these cards. Finally, we'll talk about the downside of applying for a variety of credit cards.
The practice of offering on-the-spot credit has been around for decades. During the busy shopping season, department stores such as Sears, Macy's, and Nordstrom would have associates lined up; ready to help shoppers apply for cards in-store. Oftentimes customers would be offered discounts on initial purchases just for signing up.
The popularity of such offers is easy to see. Cabela's, The Gap, Old Navy... the list of retail stores goes on and on. The offers are not limited to credit cards or in-store purchases either. Target customers can choose a debit card. Walmart offers one card for store-only purchases, as well as a Discover card.
In addition to immediate discounts on initial purchases, these cards often provide customers with rewards points too. The online retailer giant Amazon.com recently offered the following features for their credit cards:
Retail credit cards provide advantages to both the consumer, as well as the retailer. The types of advantages a "branded" Visa, Discover, or MasterCard offer issuers includes:
Of course the card also provides the consumer with advantages, some of which were mentioned earlier. Instant discounts, rewards points, and special loyalty programs are of obvious benefit to the consumer. Unfortunately, these cards have a downside too.
Debt is a growing problem in the United States, and experts believe the ease of obtaining new credit is a contributing factor. The more credit cards owned, the greater the likelihood the cardholder will begin to run up a balance. If the cardholder isn't disciplined, then a department store credit card may drive the holder deeper into debt.
In addition, two of the components of an individual's FICO score are the number of credit applications as well as the total credit obtained by the cardholder. Even if the cardholder never intends to run up the balance, the process of applying can hurt the applicant's credit score. This makes it harder to obtain new credit in the future.
Finally, the insurance industry is starting to use Insurance Risk Scores to determine the premiums paid on automobile policies. While the retail credit card might seem like a good deal in the near term, it can cost the cardholder money over the long haul.
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