“Would you like to open a store credit card and save 10 percent on your purchase today?” asks the helpful clerk.
“No thank you, I don’t wish to lower my credit score today,” I say with a smile. I am ready for the question she will ask next: why?
But no, the clerk looks bored. She doesn’t care about credit scores or financial well being. She’s supposed to promote their store credit card by dangling the bait in front of every customer.
Holiday shopping is an optimal time for retailers to scoop in more debtors who will give in to temptation, overspend, and end up paying 20.99% interest.
Two Ways a New Credit Card Can Lower Your Score
1) A retail store credit inquiry is the most damaging inquiry you can have. It hurts more than an auto or mortgage inquiry, especially if you have several within a short time frame, like the month of December. It stays on your credit report for 24 months.
2) Opening a new score can lower your overall credit history and thus lower your score. For example, if you’ve had one credit card for five years and one for three years, your average credit history is four years. If you now open two new cards during the shopping season, you instantly lower your credit history to an average of 2 1/2 years. Bam! Your score is docked.
(36 months + 60 months + 1 month + 1 month = 98 months ÷ 4 = 24.5 months)
True Story of an Angry Shopper
A nice couple came to me for pre-approval to buy a home. “My wife’s score is 800,” the husband said proudly.
Unfortunately, he was mistaken. It had been 800 in the past, but it was not now. Her score had dropped to the mid-700s. Why? Because while shopping, she accepted a credit card to save 10 percent. When she learned it had lowered her score, she was mad–especially since she decided not to purchase the item after all. So, she’d saved no money and had lost her impressive credit score.
If You Already Have a Long and Varied Credit History…You Are the Exception
If you’ve had credit established for 10+ years and have a good mix of credit cards, auto financing, and a mortgage or two in your past, then you won’t be harmed by opening a new store card. If you really want that card, go ahead and get it. Just don’t go overboard by opening up half a dozen new cards or you will likely see a negative impact on your golden score.
Please pass on this information to other good folks via social media and email, because no one needs to have their credit score dropped over a needless store card--especially if they plan to apply for financing in 2018!