Retail “deals” aren’t worth it, experts says. If you really want one, think twice before you sign up for it

By Gina Roberts-Grey

This holiday season, it’s going to be tempting to open a store credit card when the cashier is promising you huge savings when you sign on the dotted line. The prospect of saving 10-15 percent is always alluring — especially this year when budgets are stretched thin. So is the chance to prolong making payments on a pricey new washer and dryer that inconveniently kicked the bucket a few weeks into the holiday season.

But those instant savings, experts say, might actually work against you, putting a dent in your credit score and budget. And in some cases, they’re real motive isn’t saving you money. It’s padding the retailer’s bottom line.

Everything might not be better

Their TV ads feature the late Bob Hope in a Santa hat saying “Everything’s better at Macy’s…” But “better” might not be “best” for your holiday budget.

When she worked as a manager at Macy’s, Jennifer Krosche was offered some great employee incentives. “Macy’s would pay employees $5 in Macy’s money, which we could only use in the store, for every new Macy’s charge card application we’d get,” says Krosche, explaining that the store would run promotions by which employees could net bonuses. “Other times, it was $5 in “Macy’s Bucks” for every three to five new accounts.”

Macy’s isn’t the only retailer urging employees to sign us up. Krosche, who also worked at several other major retailers as an employee and manager, including Banana Republic, says employees there had a monthly goal of opening five new cards a month. “Any less, and you’d get a tutorial on how to open cards and a “conversation” about why you weren’t.” She says the employee who opened the most cards every month won a prize. “As a manager there, I was always coming up with incentives for employees to open new credit cards just to make our numbers.”

Costly credit points

Instant “savings” can also cost you big for months — even years to come. Jim Randel, author of The Skinny On Credit Cards (RAND Publishing, 2009) cautions every time you apply for a credit card — even the ones at the register — your credit report is checked. He says that credit inquiry has a negative impact on your FICO, or credit score because it “creates the appearance that you may be loading up on debt.” And that makes current and potential creditors nervous.

Randel says a credit inquiry for a store card can cost you “a few points.” Experts estimate one inquiry can lower your score anywhere from 2 to 5 points. “Apply for several store “brand” cards in a couple of months, and you will shave as many as 20 points off your credit score,” Randel says.

Opening a new charge card will cost you an additional 5 to 15 points. “Over time, you can get those points back, but in the short term, those lost points can cost you plenty,” Randel says.

The price of points

Residential and commercial real estate mortgage broker Todd Huettner suggests you think twice before even applying for a store credit card if you’re eyeing any other type of loans. Losing even one point off your credit score can cost you hundreds — or more in the long run. “Interest rates for mortgages, home equity loan, or even a car loans, go up every 20 points starting with scores lower than 740,” Huettner says. For instance, rates are determined at credit score breaks of 720, 700, 680, 660, 640, and so on. Huettner stresses that’s why losing even just one point to a credit inquiry can make a difference. “Having a score of 679 vs. 680 can cost you hundreds annually in interest.”

Assessing the savings

Slashing 10 percent off “instantly” at the cash register can wind up costing you twice that in the long run. That’s because store credit cards usually carry a higher interest rate than comparable non-store cards (like Visa or American Express), says Randel. “The discounts associated with opening or using these cards are only worthwhile if you pay the balance off completely before accruing any interest,” he adds.

But if you carry a balance, Randel says, this option is no bargain. For instance, getting 10 percent off a $100 pair of shoes, creates a “sale price” of $90. That, plus applicable sales taxes, is charged to your new account that comes with a 21 percent APR interest rate. “If you make the minimum monthly payment [in this case $10] those “sale” shoes will have cost about $107; $7 more than if you never opened the card and just paid the full non-promotional price,” says Randel. Now imagine that on a larger purchase amount, like $1000 or more.

Before accepting the cashier’s offer, ask yourself

1 – Do I have the money to pay the charge off in full with the first statement? If not, don’t open the card. You’ll probably spend more in interest than you saved at the register.

2 – Does the store already accept the credit card(s) I already carry? If so, then put on the brakes. Too much credit can damage your credit score, and lay waste to your budget, too!

3 – Will having this account fuel my urge to splurge? Those discounts and the easy access to a new line of credit may derail your budget train. Especially if you’re an impulsive shopper.

4 – Am I planning to purchase a car or house in the next six months? If so, don’t open any new credit card account (store or bank) as it is likely to take your score down a notch. This “ding” could cost you dearly in the interest you are charged for your purchase, or may even prevent your approval for any financing of your home or car.