Are Store Credit Cards Worth the Discount?

Ten percent of your credit score is affected by new accounts, and the more accounts that you open up, the more of a hit your credit score will take. Opening these store accounts will also reduce the average age of the cards in your credit history, which in turn will reduce your credit score because "[credit agencies] like to see longer, older credit history."

The average age of your credit history accounts for another 15 percent of your total credit score, and opening new cards "suggests that you're more of a credit risk," Hobson said.

Because store cards usually have low limits, your credit utilization -- the amount of your credit line you're using -- will be higher. If you have a $500 limit and a $300 balance, then your utilization is 60 percent, but if you had a $1,000 limit and a $300 balance, then your utilization would only be 30 percent. Credit utilization makes up 30 percent of your score.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD) goes into effect in February, but Hobson says "it won't really change any of this math that I'm talking about."

"It won't really change anything about the interest rates," she said, but added that "it will change the transparency. Now your credit card statement will show how many months will take to pay off that balance."

The provisions of the CARD act also require retailers to get more details about applicants in their application, and credit card issuers are required to clearly disclose their terms.

Should You Cancel the Cards You Have?

If you're carrying a balance on a store card, it's better to cancel the card before your retailer increases the interest rate.

"In canceling the card, you will take a hit to your credit score," Hobson said. "But that hit usually repairs itself in a year or so" if you pay your bills on time and manage your debt.

It's a "better option than carrying the balance and interest," she said.

But opening an account just to get a discount and then canceling the account after you pay off the purchase is a bad idea, Hobson says.

Web Extra: What to Look For If You Get a Store Card

If you do decide you want to sign up for a store card, Hobson has two pieces of advice:

Pick a Card With a Low Interest Rate

Make sure you read the fine print, she says, and try to pick a card that has a low interest rate, especially if you know you usually carry a balance. Some cards have an introductory interest rate, which then dramatically increases after a certain amount of time.

Also make sure you understand the financing terms for the card. Some retailers have no interest charges for twelve months, but if you miss your payment a year later, they may calculate interest charges from the day of your purchase. This will essentially wipe out any benefit you received from the card. You should only get one of these cards if you are responsible with your credit and regularly shop at that store.

Seek Out Store Relationships

Secondly, sometimes stores have special relationships with other stores, so you can use one store card at another or vice versa. This will prevent you from signing up for additional cards that you do not need, and in some cases you may get rewards at one store for purchases made at the other store, depending on the rewards program. Some examples include Kmart and Sears; Gap, Old Navy and Banana Republic; and Bergdorf Goodman and Neiman Marcus.

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