Do you take advantage of discounts offered by stores for signing up for their credit cards? I was at a store that was offering 20% off my purchase if I signed up for their credit card, and that is a lot of money on a large purchase. If I cancel right afterwards, what’s the harm?
No, I don’t ever answer “yes,” when they say, “Would you like to save 20% today on your purchase?” for the same reason that I never use credit cards: something with an interest rate attached to it will always, always cost more in the long run. One quick way to figure this out for yourself is to observe the fact that the checkers at these places are trained to ask you to apply for credit, almost as if they are asking if you want fries with that. They ask every customer because they earn a commission on how many credit cards they sign up–I know because I used to work for the retail outlet that Jen at Blissfully Caffeinated calls the Pineapple Commonwealth (hah–love that!), and I would get an extra few dollars every time I signed up someone for the Pineapple Commonwealth Card.
So, ask yourself this: if they are offering me 20% off, and they are paying this employee commission for signing up credit cards . . . how much money must they be making off this whole thing to push it this aggressively? A lot. Because store credit cards in many ways are worse than even regular Visa and Mastercard: they charge higher interest (usually) and can only be used in one place. They help to ensure brand loyalty, give the store information about their customer base (you), and basically encourage you to shop at their store indefinitely, spending more money while you do so, since it’s so much easier to spend more on credit than when you are using cash. Hell, if I could come up with a way to start an ABDPBT store credit card, I would! (Just kidding).
Now, I do know some financially responsible people who have done this for large purchases, say a bunch of granite counter tops at Home Depot or something. And yes, they canceled the card immediately after the purchase, so there were no interest rates accrued. This might have worked for them, and they may have saved several hundred dollars. But would I recommend it under these circumstances? The answer is still no, and here’s why: every time you apply for credit, it shows up on your credit report. And every line of credit affects your credit rating in some mysterious fashion that nobody completely understands. Ditto for cancelling the card right after opening it. So, yeah, you saved $200, but you got two dings on your credit rating. And maybe they aren’t as bad as defaulting on a loan, but overall, is it worth it? Why don’t we try simplifying our life and just not doing it? I would argue it’s really not worth it for $200, but nobody can say it’s worth it for $5 or $10–the amount you’re likely to save on an average purchase.
Getting out of debt and being financially responsible requires you to look for opportunities to save and try to salvage things where you have made mistakes in the past. But it shouldn’t require a lot of manipulation and gaming, or trying to beat the system. In my mind, these kinds of discounts are just not worth it.
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AMEN. It is never worth it to do that. Even if you cancel the card afterward, the dings to your credit score can cost you in other places, like preventing you from getting a good interest rate on a mortgage.
I knew a guy who was a long-time employee of a department store. He refused to push the credit cards, and they sat him down and told him that while he was a great employee, he needed to get more credit card sign-ups, or he’d have to go. He left.
Yeah, Dave Ramsey goes so far as to say that places like Sears are no longer really in the business of selling appliances, or at least that the selling of appliances is just a means to getting to sell you credit. That’s how profitable it is for them!