Now that the holidays are behind us, many Americans have some new additions to their wallets. I’m talking about all of the new store credit cards that retailers offer to holiday shoppers. And with these new credit cards comes the need to make decisions about how to manage them. So this January, here are some mistakes you’ll want to avoid making with your new credit cards.
1. Closing the New Cards
Many stores offer shoppers a one-time discount on their purchases when they apply for the store’s credit card. But once they have received the discount, some shoppers will close the credit card account. This can be a mistake, as closing a newly opened account can hurt your credit primarily by reducing you debt-to-credit ratio. (It’s generally recommended to keep the amount of debt you are carrying below at least 30% and ideally 10% of your available credit, collectively and on individual cards.)
You could see how new store credit cards may be affecting your credit score by viewing your free credit report summary, updated each month, on Credit.com. If you could use the extra credit to bolster your ratio, you may try to keep these account open, even if you relegate the cards to your sock drawer. Doing so preserves the benefits of having open accounts on your credit report, and you might continue to receive valuable coupons and promotions that are only available cardholders. However, as we discuss below, if you find yourself missing payments, it may be better to close the card.
2. Mismanaging a New Account
Another problem that can occur when faced with one or more new store credit card accounts is failing to manage them properly. New accounts come with new statements each month, and payment dates. Cardholders must be ready to receive those statements and make the necessary payments on time, or risk causing significant damage to their credit reports and credit scores. If you are having trouble maintaining your new store credit card accounts, then you will probably be better off closing the accounts, which is far less damaging to your credit than missing payments.
3. Overusing the New Cards
One of the reasons that retailers love to offer customers a co-branded credit card is that these cards incentivize the purchases at their stores. As a result, some shoppers will gravitate toward the store where they hold a charge card, rather than shopping for better deals elsewhere. So even if you have a store credit card that offers some rewards, it’s still a good idea to shop around for the best deal (accounting for any points you may accrue off the purchase, of course.)
4. Financing Purchases With a Store Credit Card
Store credit cards can offer fantastic rewards and discounts, but they rarely offer competitive interest rates. Unfortunately, many shoppers will carry a balance on their store credit cards, and could incur an annual percentage rate over 20%. To avoid these costly charges, you can pay off your balance in full by the first due date. Otherwise, you may wish to consider transferring your balance to a card with a lower interest rate, or possibly a 0% APR promotional financing offer for balance transfers.
For example, the Chase Slate (reviewed here) offers new cardholders 15 months of interest-free financing on both new purchases and balance transfers, with no balance transfer fee. (Chase Slate was recently named the Best Balance Transfer Credit Card in America.) Other cards can feature interest-free balance transfers for as long as 21 months, but typically with a 3% balance transfer fee.
5. Forgetting About a New Account
If you are able to responsibly manage your new store credit card accounts, and you don’t incur interest charges, then you shouldn’t forget to use your cards for store purchases that you were going to make anyways. As long as you are going to continue to shop at that retailer, you might as well earn rewards for their store credit card for in-store, which are typically more than those offered by other non-store cards. In addition, many store credit cards offer benefits such as free shipping, or a more generous return policy.
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
More on Credit Cards:
- Credit.com’s Expert Credit Card Shopping Tips
- How to Get a Credit Card With Bad Credit
- An Expert Guide to Credit Cards With Rewards