Are Store Credit Cards Worth It?

Since my recent move, I have been up to my ears in new purchases (or so it feels), so who can blame me for trying to defray these costs a bit? One such way was to open up a credit card at the department store where I bought my new mattress. Whether or not this was a good move, really depends on how well I pay attention to when the promotional period (10 months) ends. If I don't, there's a great chance that I end up scrapping any savings I might have had. The Fool's article on the very subject tells even more things to watch out for and whether or not opening a store credit card might be a good idea for you.

Spring has officially arrived, heralding the season of home improvement projects, yard work, and home organizing. Not so coincidentally, you'll notice teaser rates on store credit cards popping up all around you, especially from retailers like Home Depot and Lowe's. But they aren't making these offers out of generosity; teaser rates make the store money, often at substantial cost to you.

The Promises
You've seen the compelling promises: "0% interest for 12 months," or "No payments until 2008." Both imply that you get to borrow money from them free for a year. Is that brilliant marketing or what? The trouble is that what makes fabulous advertising copy often involves obfuscating the truth. The reality is that one little slip -- like forgetting when your promotional offer ends -- can leave you owing the original amount plus huge interest payments backdated to your date of purchase.

The Pitfalls

-- Confusing these two types of offers. With 0% interest offers, you are typically obligated to make minimum payments during the "no interest" periods; if you miss a minimum payment, say goodbye to the interest-free grace period. You'll be stuck paying off the balance with a high interest rate to boot. With "no payment" offers, you're not required to make payments for a certain time, but if the balance is not paid in full by the end of the promotional period, you'll owe all that backdated interest on top of the purchase price.

-- Purchasing extra stuff to reach the minimum purchase requirement. Don't convince yourself you are "saving" money with one of these offers if it means you buy a higher-priced item to qualify for the deal, pad your shopping basket with unnecessary purchases, or spend more than you can afford.

-- Forgetting when time is up. It's easy to remember when your interest-free period is up because the credit card company will send you regular statements, right? Not necessarily. You may receive no statements during the promotional period at all; the first notice you may receive from the company, beyond the original cardholder agreement, is a nice, big, juicy bill.

-- Failing to read the fine print. In addition to all the other nasty little details, you'll want to check to see whether your store credit card agreement includes a universal default clause. A universal default clause is a scary bit of wording that stipulates that even if you're in decent standing with your store credit card, late payments on other financial obligations can allow the store credit card lender to raise your rates. Sometimes the rate hikes are exorbitantly high. Yikes.

-- Not thinking about your credit score. Your credit score may be negatively affected if you trigger the universal default clause or simply because you're carrying a balance. A mark on your credit could pack a big punch, especially if you anticipate a large purchase (e.g., a home) anytime soon.

When You Should Go for It
Stores keep offering these deals because most folks simply don't pay off their balance before the teaser rate ends, which means a huge windfall for lenders and retailers. But if you're disciplined about money and organized enough to keep track of when your teaser rate ends, then you may be able to put these deals to work for you. Pay off your balance in full by the end of your promotional period and you will have outfoxed the fox.