Attention Shoppers - Retail Stores Are Destroying Our Credit Scores

Imagine this...

You walk into a department store to purchase something you need. Then the friendly young person at the cash register says, "You can save 20% off your purchases today if you apply for our store credit card right now."

Save 20%? Wow! Sounds like a great deal, doesn't it? But let's take a look at what really happens to your credit when you give in to that temptation.

How Department Store Credit Cards Work

First of all, you have to remember that the young clerk, who barely looks old enough to drive, doesn't understand how the system works. They just focus on how many applications they can "sell" during the holiday season. Clerks who sign up the most people get some kind of bonus in returnusually cash or company merchandise.

Let's assume you agree and fill out a credit application. The clerk presses a few buttons and processes it on the spot. (Guess how? Yup, by quickly making a decision based on how high one of your FICO credit scores is.) This is called "instant credit." You see, retailers know that the best time to sell you something is while you're still in the store.

Whether or not you get approved, you have a credit inquiry from that store on your credit reports.

Your FICO Scores Can Plummet Up to 12 Points Per Inquiry

According to our research, each credit inquiry can lower a person's credit scores up to 12 points. And here's the kicker...EACH department store credit inquiry will affect your scores for 12 months. That's 1 year! 365 days! 8,760 hours!

Let me repeat that: EACH inquiry from any retail store will count against your credit scores. Sometimes you end up going to 8, 10, or 20 different stores. If you're applying for cards at all those stores, your scores are going to take a major dive.

Meanwhile, Back at the Department Store...

The young person behind the register suddenly announces (loudly, of course) that you were denied credit, gives you a receipt, and says, "Thank you, please shop with us again." You walk out of the store rejected. Not to mention embarrassedand you didn't even save any money because you have to actually qualify for the card to save the 20%. Punks.

What went wrong?

You weren't prepared.

I remember the fear that ran through me every time I filled out a department store credit application after my bankruptcy. I would actually wait until there was no one in line at the cashier! That way, if I got declined at least I wouldn't get too embarrassed.

In the Snyder household, we don't apply for this type of credit anymore. It was one of the reasons we filed bankruptcy 12 years ago. So we stay clear of department store credit. It's expensive credit (the interest rates usually hover around 23%) and it's too tempting and too easy to go into debt.

And the worst thing about department store credit is that the negative impact of the inquiries will last 12 months...so any store credit card applications you fill out will haunt you for the next year. It can be a vicious cycle if you don't break it. You can do it...break the cycle.

There's very little a retail store credit card can do for you that your normal VISA or MasterCard can't. I should know...before I filed bankruptcy I was the king of buying on store credit! The more store credit I got, the more successful I felt. I don't do that anymore. Now I know better. And so should you.

Who you are isn't determined by how many credit cards you get approved for. Do you even need their credit card? Is saving 20% of $50 really worth the trouble? (Seriously, do the math...10 bucks is all you would save.) Remember, whether you get approved or declined, your credit scores are going to take a hit. And when you're recovering from bankruptcy with credit scores that are already low, every point counts.

The Best Way to Apply for a Department Store Credit Card

But let's assume you're smarter and more responsible than I was when I was younger, and that you've never had a problem with spending more than you can afford (after all, we don't all go bankrupt because of overspending). Here's how to properly master this process.

1. Find out what their credit guidelines are. Specifically, you want to know what credit reporting agency they use to make a lending decision and what minimum FICO credit score is required to get approved. Don't bother asking the young people at the checkout registerthey won't have a clue. Your best bet is to call someone in the store's credit department.

2. Know all three of your FICO credit scores. You can purchase them through www.myfico.com/12. This way, if the credit card issuer tells you their credit guidelines, you'll know whether you'll qualify or not.

3. If the credit card issuer cannot give you straight answers to the questions you're asking, then talk to another person within the department that will. If no one will tell you what you need, you're either not asking the right people, or you should take it as a sign you shouldn't be applying for that credit card.

By knowing the retailer's credit guidelines and your FICO credit scores you can apply for credit with confidence.

Last Words...

Of course, it's easy to get caught up in the joy of bringing a smile to someone's face when you think you're being a good parent or spouse by spending more than you can afford on credit. You must remember, the joy your children will get from a bunch of small gifts now will be multiplied by a hundred when you're financially stable enough to pay for their college education...or buy them their first car...or help them with a down payment on a new home. Plus, your financial responsibility will set a great example for your children.

The bottom line is: you need to think twice about the negative effect credit inquiries have on your ability to finance more important things such as mortgages, home equity loans, new cars...not to mention your insurance premiums could skyrocket!

Stephen Snyder is the founder and president of the After Bankruptcy Foundation (mortgage how much can i borrow affordability), a non-profit organization that provides free resources for helping people recover from bankruptcy (mortgage rate calculators). Stephen is also an author, speaker and leading authority on bankruptcy recovery and credit scoring.

Index
nationwide home mortgage loan company
home mortgage calculator
best fixed rate mortgage
Index
national city mortgage
Index
calculate a mortgage
home mortgage
Index
Index
gmac mortgage
Index
Index
monthly payments on mortgage
uk mortgage payment calculator
Index
karls mortgage calculator
how much can i borrow for a mortgage
mortgage loan payment calculator
how much can i borrow for a mortgage
loan mortgage calculator
mortgage rate history
Index
national city mortgage
mortgage rate calculators
refinancing mortgage rate
mortgage company
loan mortgage calculator
wells fargo mortgage