Instant credit offers can lure you into high interest rates

You are at your favorite department store, preparing to buy a thing or two that you saw on sale. You head on up to the cash register and pull out your checkbook, or perhaps a major credit card. The kind sales clerk says to you, “If you’d like to apply for our credit card, we will give you a ten percent discount.”

Ten percent? “Hmmmm”, you think. “I’ve got $150 worth of stuff here, so that would save me $15!” You go ahead and agree to take their card, and the sales clerk assures you that it will take just a minute.

And it does. That’s instant credit! You then apply your charge to the new account and receive your ten percent discount.
Was that a wise thing to do?

Maybe, and maybe not, depending on your own financial situation. As a rule, credit counselors urge all consumers to carefully decide whether or not to take on new sources of debt. You don’t want to just take a credit card on a whim, and you certainly don’t want to be lured in by a small discount on a one time purchase. Most department store credit cards have substantially higher interest rates than the major credit cards, such as Visa or Mastercard.

Those interest rates can be in excess of 20%. And what if there’s no grace period on purchases? You may have received a 10% discount, but you may be paying 25% interest on the purchase from the minute you walk out the door! Do you know? Did you bother to check before accepting the card? Now that you have the card, will you use it? If you do, you could end up spending a lot more in annual interest than if you had just said, “No, thanks” and used the major credit card instead.

It is very easy to fall into the trap of just accepting credit cards every time you have one offered to you. But there are other considerations besides the interest rate and the grace period. Every time you apply for credit, it puts a small “dent” in your FICO credit score. The credit bureaus consider it a bad thing to have consumers applying for credit over and over again, and they indicate all financial inquiries on the credit report. Multiple applications in a short period of time can affect the score significantly. That can be a problem if you are about to buy a house and you need the best available interest rate.
That department store card you applied for could, under the right circumstances, affect the interest rate you get on a house loan.

And that’s far more significant than the ten percent you saved on the dress and the shoes.

As a rule, you should avoid these point of sale offers and stick to cautious, well thought out financial planning. In the end, you will save a lot of money by not using the high interest card that you didn’t really want in the first place.

Sustainable Living Information @ http://www.articlegarden.com 

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