Attention Shoppers - Retail Stores Are Destroying Our Credit Scores
By Stephen Snyder
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 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 when you give in to that temptation.
How department store 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 return—usually cash or company merchandise.
Let's assume you agree and fill out a 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 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 inquiry from that store on your reports.
Your FICO Scores Can Plummet Up To 12 points Per InquiryAccording to our research, each inquiry can lower a person's scores up to 12 points. And here's the kicker...EACH department store 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 scores.
At some point in our lives, we've all shopped at a mall. 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 embarrassed—and 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 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 anymore. It was one of the reasons we filed bankruptcy 12 years ago. So we stay clear of department store credit. It's expensive (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 is that the negative impact of the inquiries will last 12 months...so any store 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 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 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 cards you get approved for.
Do you even need their 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 scores are going to take a hit. And when you're recovering from bankruptcy with scores that are already low, every point counts.
The Best Way to Apply for a Department Store CardBut 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 guidelines are. Specifically, you want to know what reporting agency they use to make a lending decision and what minimum FICO score is required to get approved. Don't bother asking the young people at the checkout register—they won't have a clue. Your best bet is to call someone in the store's department.
2.
Know all three of your FICO scores. You can purchase them through www.myfico.com/12. This way, if the card issuer tells you their guidelines, you'll know whether you'll qualify or not.
3.
If the card issuer cannot give you straight answers
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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 card.
By knowing the retailer's guidelines and your FICO scores you can apply for with confidence.
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.
Last words...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 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!
Article Source: http://www.articles-galore.com
Stephen Snyder is the founder of the After Bankruptcy Foundation a non-profit organization that provides free bankruptcy information and recovery steps. He has helped thousands of people understand complex credit score information.
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