Posted on 12/07/2005 10:38:09 AM PST by Sonny M
If you're like most Americans, you've already started buying gifts for the holidays.
According to the National Retail Federation, more than 145 million Americans shopped during the Thanksgiving weekend. Between in-store and online purchases, shoppers dropped an average of $302.81. These numbers will just keep rising as the December shopping marathon continues with the average American expected to drop almost $740. That's a lot of ties and fruit cakes.
I'm not going to tell you to watch your spending in this column. What I want to talk to you about is how to avoid being royally ripped off by department store credit cards.
Want to Save 10 Percent on Your Purchase Today?
If the department stores did their job, you've already been offered "a special deal" on purchases this season. I have. I recently went into one of my favorite stores (a large national clothing chain) looking for a grey sweater. As I looked for my size, I was approached by a perky clerk.
"Hi, have you signed up for our store credit card?" she asked
"Well, no. I'm looking for a small grey sweater."
"Let me look," she said.
She never returned.
I finally found some things and headed to the dressing room where another salesperson approached me.
"Can I help you with anything?" quickly followed by, "Have you signed up for our store credit card?"
I said no and explained that I was looking for a small grey sweater.
"Well you really should get a card today, because we have a special $15 gift certificate if you do, and you get 10 percent off your purchase today. It's really a great deal," the clerk responded.
On and on this went with nary a grey sweater in sight. When I went to pay for some socks and pants, I was asked twice again if I would like to sign up for the store's credit card. One clerk even showed me the math.
"You'd be really foolish not to get a card today," he said, "because you will save $32 on this purchase, plus you'll get the $15 gift certificate. That's $47 for free -- for doing nothing! Just sign here."
I didn't take the card, but I had to say no four times before I left the store. Even if approached by persistent sales clerks, avoiding retail credit cards is the right thing to do. Here's why.
1. The Interest Rates Often Exceed 20 Percent
According to Bankrate.com, the average credit card in America has an interest rate of about 13 percent. Interest rates on store credit cards can be higher than 20 percent annually. Just this week, a friend told me that her department store credit cards from two years ago (the ones that were originally zero percent interest) are now charging her 28 percent!
Senator Charles Schumer of New York is also concerned about department store credit cards. In a recently released report, he explains why these cards are a lousy deal for consumers. Almost all the stores included in the report were charging over 20 percent interest.
2. Chances Are You Won't Pay Off Your Balance Quickly
I know the rationalization you'll make when you take one of these cards: You'll pay off your balance as soon as the bill arrives. And saving on your current purchases naturally seems like a good deal.
The truth is you probably won't pay off the balance when you get the bill. The stores know this. That's why they want you to get a card. They're not doing this to give you a good deal. They want to get rich off of you. They can make more on your debt than what you buy.
Assuming you make minimum payments, a $1,000 purchase at 20 percent interest would cost you $1,464.64 in interest. Suddenly, saving $150 on that initial purchase doesn't look like such a bargain.
3. You Could Hurt Your Credit Score
Most department store credit cards have low credit lines. You may be offered a few thousand dollars or less, but it will be instant credit. Credit is reported to the credit bureaus, and if you use the cards and most of the line allowed, it can quickly lower your credit score. This can cost you a lot of money later if you have to borrow to buy a car or home.
Also, if you apply for multiple credit cards during a shopping spree, those requests can show on your credit report and also lower your credit score. Trust me: Just saying "yes" to a store credit card is a much bigger commitment than you think.
4. You May Pay Your Bills Late
According to R.K. Hammer Investment Bankers, more than 35 percent of credit card companies' income now comes from late fees. Last year alone, the industry took in $43 billion in fee income.
The credit card companies know that the moment you take on a new card, you've got another chance to be late on your bills. They love this, because they often charge $30 or more for late fees. Also, the moment you're late on your card, chances are your interest rate will rise.
So even if you applied for a special deal "with no interest for 12 months," if you're late -- just once -- the rate can be bumped to 17 percent. Do it again, and it's probably going over 20 percent. Don't believe me? Read the fine print on the application.
Just Say 'No'
I feel bad for those nice clerks. They're just doing their job.
They have to ask you if you want a credit card. They have to ask people thousands of times a week. They must hate asking it as much as we hate hearing it. But, you don't have to say yes.
Just say "no" -- nicely of course.
"I've signed up for the card to get the discount. Then paid in full, and then immediately cut up the card."
Me also.
Yes, of course. I neglected to put that in the post but it is in fact something I do.
Those are legitimate objections.
Good for you. We have no credit card debt, however we are in the market for a car, an over $20,000 ticket item. We have waited longer than we should have to buy. Looking at an 06 Nissan Titan. Any reviews out there? If we wait much longer, we will have to walk, probably good exercise though..
If you pay your credit cards bills in full, the cards are a good deal. I usually get an additional 15 percent discount off of sale prices by using the store card.
I got a call at 7:00 AM one SATURDAY morning notifying me that I was about to be reported to a credit collection company. I was groggy, and while I didn't think I had missed a payment (I pay everything in full when I get the bill), I agreed to let them take my payment (about $200) out of my checking account. Okay, I was half asleep. I had to also fork over some charges, about $20.
The incident disturbed me, but I had remembered buying a couple of outfits the previous month. The next bill came in the mail--I had a credit balance for the $200--plus the record showed I had paid within the proper time.
I spent the next couple of hours growling my way up the ladder of management at Brand X--and I got my $20 back, cancelled the card, in addition to yelling at a few yuppies for waking me up on a rare Saturday off.
It occurred to me later that a lot of people might not have bothered--and that Brand X was making a nice bundle (in volume) on those $20 charges.
Let 'em keep their discounts--
But you're still hurting your credit score.
If you have good credit already, it really doesn't matter that much. If you are a borderline case, I could see it being an issue. In that case you will have to notify the bureaus that you've cancelled the card.
I hope that by "immediately",you mean immediately,that is,right there at the register as you take your receipt.
I recently went into one of my favorite stores (a large national clothing chain) looking for a grey sweater...I said no and explained that I was looking for a small grey sweater..."Well, no. I'm looking for a small grey sweater." When I went to pay for some socks and pants...!!!
The problem is obvious.
I've signed up under a my name with bogus DOB/SSN and the address of the Midland YMCA, paid cash for the purchase when the application was declined.
Saves the problem of cancelling the card.
As for the actual shopping experience; I use the internet since I can't stand malls and usually there are no sales TAXES.
Go to your bank and have them look up your FICO rating. Some may be surprised. I had a Gulf card 12 years ago for convenience; went to Europe for three months, didn't pay the bill, and it was STILL an open item. Every time someone opens up an account, it has an impact with one's credit rating.
Bingo! Too many people do not understand that. Mine is close to 800. And, because of that, we got a much better mortgage rate when we built our new house two years ago. Then, we pay our mortgage on an automatic (transfer) semi-monthly basis... mortgage will be paid off in 12 years.
A word of warning......watch for the Sears CitiBank Visa, in my case I thought I had it paid off, using it only for a discount purchase. I stopped getting monthly bills for 6 months, then got a notice that I had an annual fee, late charges and penalties and the rate was up to 30%. I asked where the bills had been going....no response. I paid off the card, closed the account and will not get within 50 feet of a f---ing Sears store if my life depended on it.
I’ve been approached several times in the last couple weeks and asked if I want a store card. I reply, “What? You don’t take VISA?”
Citibank--see my post about Brand X...
I don't do credit cards AT ALL but unfortunately have a car payment in addition to the mortgage. I went two years without a car payment and it made me very very sad.
The "lousy deal" is pretentious traitorous New York Senators pretending to be looking out for the little guy's pocket book on one hand while taxing him into financial oblivion with the other.
What a phony creep.
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