It is tempting to get a department store credit card whenever you are offered one by the cashier at the place where you are making a purchase. This temptation is due in part to the fact that these cashiers tend to be aggressive in pushing the department store credit card. It’s also due to the fact that the department store credit card almost always offers an immediate percentage-off savings at the time of application. And it’s tempting just because we like to have more credit so that we can spend more money. But the short-term benefits of the department store credit card may not outweigh the long-term problems that the department store credit card can cause for you.

The most obvious problem that may be caused by department store credit cards is that they let you acquire more debt. The department store credit card adds another card that you can use when you get in that impulsive shopping mood. This means that it frees up more loan money than you already had available which means that you can get yourself into more trouble with excessive debt than if you had just used a credit card that you already had to make the purchase. Additionally, the department store credit card tends to have a higher interest rate and higher transaction fees than those of standard credit cards which means that you’re paying more in the long run for incurring that debt on a department store credit card than you would pay if you used a normal credit card to make the same purchase. This mitigates the savings that you get at the time of purchase and can cause you to lose money overall.

In addition to the financial problems caused by department store credit cards, you should know that these credit cards can cause damage to your credit report. Part of this is caused simply by the fact that you’ll be incurring that additional debt – and that you have yet another card that you may make late payments on. However, it’s also caused simply by filing the application to get the credit card in the first place. Every credit card application that you make causes a small hit to your credit score. This type of credit card application causes a small drop in your credit score that only lasts about six months but it also shows up as a mark on your credit report that can remain on the report for up to two years.

Department store credit cards offer some benefits. For example, they are easier to get than normal credit cards and are sometimes the only option for starting to establish credit when you don’t have any yet. But there are major drawbacks to the department store credit card including the high percentage rates, the fact that they allow you to incur more debt, their limited use at only one store and the impact that they have on your credit score just based on the fact that you’ve applied for them. These drawbacks make it so that the department store credit card bites you in the end despite the early benefits.

It is all too common for someone to be in the position of not being able to secure a credit card (or at least a credit card with good terms) using solely their own credit. Sometimes this is because the individual is young and has not established his or her own credit yet. Other times it is because financial problems in the past have caused the individual to accumulate a history of bad credit. In either case, if you find yourself in this position then you may consider asking someone that you know to co-sign on a credit card or loan for you. This would allow you to utilize their credit in order to secure a credit card. There are both pros and cons to doing this which you should be highly aware of before proceeding.

Pros of Having Someone Co-Sign on a Credit Card

There are definitely benefits of having someone that you know co-sign on a credit card for you. These benefits include:

• You get the loan or credit card. You wouldn’t have gotten it otherwise so being able to get it with the help of a co-signer is clearly a benefit.

• You get better terms. You may be able to get a good interest rate or even some cash back rewards if your co-signer has good credit.

• A fresh start. Many people find that they can rebuild their own good credit once they have the responsibility of making sure to make on-time credit card payments to a credit card bill that has a co-signer on it.

Cons of Having Someone Co-Sign on a Credit Card

There are also drawbacks to having someone co-sign on a credit card for you. These are serious drawbacks that you should carefully review before deciding that getting a co-signer is a good idea:

• Having to ask. Frankly it’s not any fun having to ask a parent, friend or family member if you can use their credit. It’s embarrassing to admit that you can’t get a credit card on your own and you have to deal with the nuances of the whole conversation. You also risk hearing “no”.

• Added responsibility. You already have a responsibility to pay off your credit cards and be responsible with them but that responsibility is heightened when you are using someone else’s credit to obtain a loan. This can be a lot of pressure for some people.

• Damage to the relationship. If you do find that you have trouble paying off the debt that you acquire on someone else’s credit, you may discover that this does serious damage to your relationship.

• Power imbalance in the relationship. One of the specific problems that can come up in a relationship where a co-signing situation has occurred is the issue of power. Someone holds power over you when they help you financially. This is a serious thing to consider.

Clearly there are benefits to having someone co-sign for you to get a credit card, especially when you aren’t going to be able to get the card without their help. However, there are risks to your finances and your personal relationships which must be weighed against the financial gains.

There are some people who receive low-interest balance transfer offers in the mail and immediately tear them up. These people realize that there are risks involved with switching balances from one credit card to another and they want to avoid getting in to financial trouble as a result of those risks. While it’s true that they may be saving themselves from a bad financial move, it’s also true that they could be causing themselves to lose out on a good opportunity to lower their monthly payments and to reduce the overall amount of interest that is paid on the outstanding balance. Instead of immediately tearing up those offers, these people should think carefully about the pros and cons of the balance transfer in relation to continuing to pay on the balances owed.

There are several major benefits to switching balances from one credit card to another. The main reason that people want to do this is because it allows them to lower their interest rate, often drastically. For example, you may have a credit card balance on a high-interest credit card which exceeds 25%. Switching over to a low-interest card which has an interest rate of under 5% is clearly going to make a huge difference in the amount of money that you’re paying. You will reap the benefits in the short-term as well as in the long term.

In the short-term, you will be able to significantly lower your monthly payments. The amount of money that you pay each month is calculated in part by the required interest payment. By reducing the amount of money that is owed on interest each month, you automatically lower your monthly payments when you switch credit cards. Additionally, this lower payment can make it easier for you to pay more down on the total outstanding balance. This means that you’ll pay the bills off more quickly and will ultimately be paying less in total because you’ll be paying interest on the loan for a shorter period of time.

However, there are fees associated with balance transfers that you will want to be aware of before you determine that switching credit cards is a good way to save money. The most important fee to pay attention to is the transaction fee for the balance transfer. Most credit cards charge approximately 3% of the loan rate as a one-time fee. If you’re already having trouble meeting your monthly payments, then you might not be in a position to pay this fee. One thing that you should look for is whether or not the balance transfer transaction fee has a cap. Many credit cards will say something like “3% fee with $75 maximum”. If you’re already paying hundreds of dollars in interest each month then you might benefit from paying the fee despite that it will cost a little bit of money out of pocket at the time of the transaction.

There are some other tricky things that you should know about when switching credit cards that can reduce the financial benefits of the transfer. For example, you should know that low-interest offers are almost always limited in duration. If you are not planning to be able to pay back the total loan amount within a short period of time (six months or twelve months are the most common low-interest rate offers) then you should try to find a long-term low-interest balance transfer rate. The actual percentage rate will be higher (around 7% instead of 0%) but if it lasts for the life of a long-term loan then you could save money in the end.

You’ve done the difficult part; you’ve made a decision about which credit card is the one that you wish to get. Now it’s time to fill out the credit card application. At first glance, this can seem simple. After all, you’re just entering some basic information about yourself that you already know. However, there are some tricks to filling out the credit card application which can assist you in securing a better card. (more…)

You applied for a credit card and have been anxiously awaiting a response. When the envelope comes in the mail, it doesn’t contain a card. Instead, it has a letter saying that you’ve been turned down. This can be a frustrating experience. But if you follow the right steps, you can improve your chances of being approved the next time that you apply for a credit card. (more…)