Why you shouldn't open a store credit card during the holiday season

30.09.2024 - 15:43 / thepointsguy.com

Not long ago, I was at Home Depot with my mom, grabbing a few things she needed, like lightbulbs and air filters. A friendly employee wearing the store's iconic orange apron greeted us.

She offered my mom the opportunity to open a Home Depot credit card and receive $25 off her purchase — nearly offsetting the price of my mom's entire cart. As my mom reached for the application, my credit card instincts triggered a motion uncannily similar to a panic attack. Nobody was opening a store credit card with a $25 welcome bonus if I had anything to say about it.

Related: 4 reasons store credit cards are (almost) always a bad idea

Around the holidays, it's especially easy to fall for an in-store credit card sales pitch at checkout. Many retailers will give you a 10% or 20% discount if you apply for a card on the spot. And while saving even $50 or $100 can seem enticing, there are many reasons to avoid opening a store credit card. Plus, there are shopping tricks (like making purchases through an online portal) that can give you nearly as big of a discount without the need for a hard credit pull.

If you're going to open a new card, choose a true rewards credit card instead of one at the store. The miles, points, or cash back you earn with these cards (including certain no-annual-fee cards) can be worth much more than a one-time discount at checkout. They can also come with valuable sign-up bonuses that can be worth hundreds of dollars in cash back — or thousands in free travel. Plus, their ongoing benefits can provide plenty of value in the long term.

Everyone knows the importance of a good credit score. It's a metric that banks use to determine your creditworthiness when you're applying for a loan for a car, a home mortgage, a credit card, and more. But not everyone realizes the factors that go into calculating your credit score. Payment history is one important factor, which is why we always urge you to pay card balances on time and in full each month.

But another important factor (30% of your credit score, according to FICO) is your credit utilization ratio, which is your amount of card balances divided by your total available credit across all of your cards.

In my experience, the credit limit you get on a store credit card typically isn't much higher than the amount of your purchase. If you're spending $1,000, for instance, you might get a $3,000 credit limit. Although your credit utilization score is often calculated as your amounts owed compared to your entire line of credit across all your credit cards, creditors also sometimes consider your per-card utilization. In this particular example, the utilization ratio for your new card account would be a whopping 33%, which might negatively impact your credit