22 May Pros and cons of store credit cards

 Q. I have taken a few store credit cards to take advantage of the coupons. How can I tell if they’re worth keeping?

A. Special offers and coupons can make store cards attractive — at first.

The elephant in the room for store credit cards is the interest rate they typically charge on balances not paid in full, said James Marchesi, a certified financial planner with Mill Ridge Wealth Management in Chester.

“Some store cards charge nearly twice the national average annual percentage rate (APR),” he said. “So, if you are not paying the charge debit in full each month, the easy answer is pay off the balance and cut up the store cards.”

Assuming you pay the store cards off in full each month, there may be a few reasons to keep and use store credit cards, Marchesi said. If you can reach a usage level where the store identifies you as a valued customer, they may offer you multiple discounts of significant value throughout the year — but make sure the card doesn’t charge an annual fee.

Also, Marchesi said, a store may offer deferred financing on purchases of a certain dollar amount or higher.

“As long as you can pay off in full within the prescribed time period, that offer could prove useful,” he said.

Other store cards may offer a free monthly credit score report, no-fee/interest cash withdrawal options when making a purchase (usually up to $100), or double reward points on certain purchases, he said. And if you’re trying to build or rebuild credit, store cards are the easiest to get, he said. Just remember that if you can’t pay off the balance each month, it will be too costly because of the high interest rate on carried balances.

If you are going to cancel store cards, because of the typical low credit limit, you should not have to worry about a big ding on your credit score. That’s because the amount of credit that’s available to you is tied into your “credit utilization rate.”

“Your credit utilization rate is the percentage of your credit limits that you are using at any point in time,” Marchesi said. “It is figured by dividing your credit card balances by your credit limits – this metric is used by most credit card scoring models to determine creditworthiness.”

Removing a store card with a $750 limit from your current credit card lineup should not impact your utilization rate in a significant manner, Marchesi said. Before cancelling, do the math to make sure.

Another consideration is the attractiveness of the reward programs on your other cards. If you get better incentive to use your primary credit card such as a Visa or Mastercard offered through a financial institution, like a bank, you may be better off accumulating more points through that card than opening a store card, Marchesi said.

So the bottom line is to look at the store card benefits, compare that to your other card incentive programs, and make an educated decision.

“Regardless of what card you use, have a plan on how to pay off any purchase within a period of time where you will not be paying interest on a remaining balance,” he said. “Interest paid on credit cards is not tax deductible, and only makes what you bought that much more expensive.”

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This story was first posted in June 2015.