“Would you like to open a store credit and save 20 percent today?” While these offers may sound tempting, Tyler Dolan, CFP®, encourages shoppers to exercise caution.

Black Friday is here. But before you break out your holiday shopping list, consider this pro-tip: Think twice before signing up for that in store credit card.

I know, it’s tempting when a checkout clerk asks if you’d like to sign up for a retail credit card and get an immediate discount on your purchase. Be careful: There’s a lot more to consider than that initial discount.

Be honest with yourself. If you have a proven track record of responsibly managing debt, signing up for the store credit card could be a great deal (especially with larger purchases and if it’s at a store where you frequently shop). The perks: You’ll receive a significant discount on your purchase today, could qualify for extras like free gift-wrapping and discounts on future purchases, and could even improve your credit score over time by paying off the card balances on time.

But if that proven track record doesn’t exist, here’s what you need to be careful of:

High interest rates: Last year, CreditCards.com published a survey finding that retail credit cards carry an average interest rate of 23.84 percent, which is much higher than the current national average rate for all credit cards (15.18 percent).

Card security: In the same survey, CreditCards.com found only 29 of the cards offered by America’s top 100 retailers are issued with EMV chips. (For comparison, 70 percent of consumers now have EMV chips in their cards.) EMV chips encrypt bank information, making them much more secure than cards that only have a magnetic strip.

Deferred interest: Some store cards sound intriguing with a 0 percent interest period, after which interest would be due on any remaining balance. Some store cards have deferred interest policies that get buried in fine print. If you make a late payment or carry a balance after the promotional period, the issuer could retroactively charge you interest on your entire purchase amount. Sneaky, right?

Your credit score: Whenever you open a new line of credit such as a store credit card, always keep in mind the potential impact on your credit score. Your credit score can be a huge factor in your ability to obtain a loan, rent a new apartment, or even get a new job. If you don’t know your credit score, Credit Karma is a great free resource to find out.

If you open up an in store credit card everywhere you go on Black Friday, it won’t be good for your credit score: Too many new credit inquiries in a short amount of time makes you look desperate to a lender.

Credit Karma shows your credit scores from Equifax and TransUnion, who calculate your credit score using their VantageScore model. This model uses credit utilization as one of six determinants of your credit score. Since store credit cards typically have low limits, they can throw off your credit utilization ratio (which is your total current credit balances divided by your total amount of available credit). Typically, you should shoot to keep your credit utilization ratio below 30 percent. You should always shoot for a $0 balance, but if you have a $10,000 credit limit between all of your credit sources, at least try to keep your balance below $3,000. If your credit limit for your new store credit card is $500 and you have a $375 balance after your purchase, your utilization ratio for that source of credit is 75 percent.  

Overspending: Sometimes having a store credit card can feel like you’re not using your own money. It’s easy to overspend that way. It’s also easier to make impulse purchases in that store in the future. Remind yourself that you’re eventually responsible for paying that money back, and it could be pretty costly if you’re racking up high-interest debt.

This photo shows Tyler Dolan, CFP, at Society of Grownups.

Tyler is a CERTIFIED FINANCIAL PLANNER™ practitioner who believes financial education can empower people to reach their goals.

Any third-party resources or websites referenced above are not under Society of Grownups control. Society of Grownups cannot guarantee and are not responsible for the accuracy of the resources, websites, or any products or services available through such resources or websites.

While Society of Grownups hopes the information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.

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