You've selected a few things at your favorite department store. After waiting in line for what seems like eternity, you have reached the moment of truth: the sales associate asks, "Do you want to save 15 percent today by opening a store credit card?" You quickly do the math in your head and decide it's worth it, apply on the spot and you're approved for the new card in no time. Aren't you a savvy shopper?
Well, are you? Now you're stuck with a new credit card that you didn't expect to have just moments ago, and it already has a balance. So what do you do now? Should you cut up the card and call it a day? Should you close the card?
First of all, this is all too common. According to a study conducted by Harris Interactive and commissioned by Credit Karma, 21 percent of Americans have opened a store credit card at least once over the past two years for the immediate in-store discount. Surprisingly, 45 percent of those shoppers admit that they didn't consider the impact on their credit or finances when they filled out the application.
So, you're not alone.
Here's what to do with an unexpected store credit card:
Keep track of your credit utilization. Your credit utilization rate is the percentage of your credit limits that you're using at any given time. It's calculated by dividing your credit card balances by your credit limits and is a metric used by most credit score models to help assess your creditworthiness.
In general, the higher your credit utilization (the more credit card debt you have), the lower your credit score. Typically, a credit utilization rate of approximately 20 percent is a good guideline, although you don't need to carry a balance from month to month to prove or show utilization.
Store credit cards typically have lower credit limits, so if you're buying a big-ticket item, such as a new television for $1,000, you might not get the discount you hoped for if you're only approved to spend $500. Keep this in mind as you use your new credit card.
Use your new card regularly. Your new store credit card can actually benefit your credit if you use it responsibly. If you opened the card to get a one-time discount and then forget about it, your creditor could eventually mark it as inactive, which means the card may stop showing up on your credit report. You'll also lose the benefit of the card's credit. However, this isn't reason enough to open a store card at every retailer you visit.
By using your new card regularly, you'll build a steady, positive credit history with your new line of credit. However, this isn't reason enough to begin opening a store card at every retailer you visit.Limit your spending to your normal patterns. One of the common temptations of having a store credit card is to overspend at the retailer, just because you'll receive a discount by using your store credit card. Use your new credit card for purchases you already would have made; that way, you'll save on items you intended to buy, instead of out-of-the-ordinary purchases.
Pay off your balances in a timely manner. After the buzz of your initial discounted purchase wears off, check your balance so you can start making timely payments on your card. Just one missed payment can damage your credit score. That missed payment will remain on your credit report for seven to 10 years.
If you pay off your statement balance, you'll avoid interest payments. If you pay just the minimum, you'll end up paying interest, which could negate the discount you received when you first opened your account.
Store credit cards get a bad rap, but they can actually be good for building credit. Think of them as one type of tool in your financial tool box. When used appropriately, a store credit card can get you discounts on items you buy regularly and help you establish good credit habits that will benefit your finances in the long run.
Bethy Hardeman is the consumer advocate for creditkarma.com, a free credit monitoring website that helps more than 22 million people access their credit score for free.