Is It Smart to Open a Store Credit Card on Black Friday? 

Is It Smart to Open a Store Credit Card on Black Friday? 

November 6, 2020         Written By Bill Hardekopf

Every year, the day after Thanksgiving marks the big start to the holiday shopping season. Black Friday is a day packed with longer store hours, giveaways, tremendous sales, and long lines. When you shop on Black Friday, your store cashier will likely ask you to sign up for a store credit card.

You’ve probably heard the offer when you’re checking out at stores like TJ Maxx or Kohls. It’s always the same, “Would you like to save money by opening a credit card account?” While the usual offer is 10 to 15%, you might find better offers on Black Friday. You might be offered a discount plus a sign-up bonus. You may learn that cardholders become VIPs with special checkout lines to eliminate long waits. You can earn points on purchases that are exchanged for gift cards.

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You save money on your purchase and gain perks on future shopping trips. That makes a store credit card worthwhile, right? You might even listen to the clerk who says you can use the card on this purchase, pay it off, and never use the card again. Before you sign up, make sure you understand the pros and cons of applying for a store credit card on Black Friday.

Pros of a Store Credit Card

Store credit cards have a lot of perks. If you shop at a store a lot or have a lot of large purchases to make, a store credit card will save you money.

You Get Discounts on Your Purchase
Most offer an instant discount when you apply for a store credit card. Discounts vary, but you may find a store that gives you 10% or 15% off your initial purchase. On a big-ticket item, this discount can be substantial. If you get a 15% discount on a large purchase, the savings can be substantial. If you use your credit card to buy the $1,000 gaming computer you’ve been eyeing, you may take $150 off that purchase right away.

Rewards Programs Provide You With Gifts Throughout the Year
Store cards often have rewards programs where you earn points on qualifying purchases. Those points are cashed in for gift cards on your next purchase. Some store cards offer rewards that give you a discount on every purchase you make.

Store cards may give you a birthday gift, customized coupons for in-store and online purchases, and cardholder-only pricing. You could find that your store credit card allows you to cardholder-only events where prices are slashed for a few hours. On Black Friday, a store card might give you member-only registers for faster checkouts.

Cons of a Store Credit Card

There’s no denying that store credit cards benefit shoppers in several ways. But they can also harm your credit score and cost you more in the long run.

Every Loan Application Requires a Hard Inquiry
You have to undergo a hard credit inquiry to get the credit card. That hard inquiry appears on your credit report. It may not hurt too much if that’s the only credit card or loan you’re applying for. If you have also had hard inquiries for a car loan, new home purchase or rental, and credit card, it will cause your score to drop.

How much will it hurt you? According to FICO, one hard inquiry won’t hurt. Each additional inquiry can drop your score by five points. If you apply for a store credit card, auto loan, and mortgage around the same time, your score takes a ten point hit.

There’s another problem. Hard inquiries are factored into your credit score for a full year, but they remain in your credit file for two full years. Statistics show that people who have had more than five hard inquiries appearing at one time are eight times more likely to file bankruptcy during their lifetime. Creditors know that.

Bill Paying Can Be Challenging
The more credit cards you have, the harder it can be to keep track of what bill is due. You need to be organized to ensure you don’t miss a due date. Plus, a store card may decide to hand account management to another bank over time.

Citi Retail Services manages accounts for millions of retail accounts. They serve Best Buy, Exxon Mobil, Home Depot, L.L. Bean, Sears, and many others. If you have cards with several stores, you’ll have two, three, or more payments due to the same credit card company. It can get hard to remember who gets paid on a certain date. Messing up just once could cause a late payment that hurts your credit score.

Small Lines of Credit Hurt If You’re Not Careful
Store credit cards usually have a small credit limit. That can be a problem if you plan to make a large purchase with it. Let’s say you’re approved for $2,000 with Best Buy and planned to purchase a new refrigerator to get the discount. The refrigerator you want is $1,200, but you get 10% off by signing up for the card and using it on this purchase. You may save $120, but that’s the second hit on your credit report.

You have a $2,000 credit line and now are charging just over $1,000. That’s more than 50% of your credit line used up. That counts against you. Ideally, credit bureaus don’t want to see you use more than 30% of your available credit. Going above that level may decrease your credit score.

Closing the Card in a Hurry Doesn’t Help
You’ve been offered the one-time welcome discount if you apply for a credit card at the register. The cashier tells you to take the discount and then close the card. Doing that can hurt your credit score. Part of a credit score involves how long you’ve had a relationship with the credit card issuer. The longer the relationship, the higher your score for that criteria. Having a store credit card for a month or two and canceling it doesn’t help establish a history. It’s better to keep it and just not use it.

Interest Rates Are Higher
To cover the cost of the discounts cardholders are extended, store cards often have extremely high interest rates. You might get a one-time discount on your first purchase, but you’ll pay a lot more in interest over the years if you don’t pay off your purchase at the end of the month. You haven’t saved any money in the long run.

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What’s a Better Option?

Instead of signing up for a store credit card, look at these three options. Prepaid cards, 0% introductory APR credit cards, and cash back credit cards are better options for shoppers looking to save money. Take a closer look at these alternatives to a store credit card.

Prepaid Cards
If you have poor credit or no credit, you may find it hard to qualify for a new credit card. Apply for a prepaid debit card instead. You add funds before you shop, which reduces the credit card company’s risk. That makes it easy to qualify for a prepaid card.

Most prepaid cards provide you with cash back rewards on qualifying purchases. The PayPal Prepaid Mastercard® is a great choice. Not only do you have cash back rewards, but you can get refer-a-friend bonuses for friends who sign up, add funds to their card, and use it on purchases in retailers or sites that accept Mastercard.

0% Introductory APR Credit Cards
If your plan is to buy a more expensive item with your new credit card, then a 0% introductory APR credit card may be perfect. Pay no interest on that new credit card for a number of months. Use those months to pay off that item. This establishes a history of making minimum payments on time, which shows responsibility. Paying over time also makes it easier to buy bigger items like appliances.

The ABOC Platinum Rewards Mastercard® is a solid 0% APR introductory rate card. You get the 0% APR for a full 12 months. If you spend $1,200 within 90 days of qualifying for the credit card, you get a statement credit of $150, too. There’s one other benefit. You also get 5x rewards on a specific category each quarter. If your purchase falls in that category, you have five times the rewards points to use on things you need.

Cash Back Credit Cards
If the draw to a store credit card is the cash discount you receive, a cash back credit card is even better. Instead of getting reward points or cash back on purchases with that store, you get cash on every qualifying purchase.

The Petal 2 “Cash Back, No Fees” Visa® Credit Card gives you 1% cash back on eligible purchases straight away. Once you’ve made a year of on-time payments, you get 1.5% cash back. You also avoid international fees, annual fees, sign-up fees, and maintenance fees.

When you apply for a new credit card for Black Friday, ask if you can pre-qualify. Pre-approval doesn’t require a hard inquiry. You learn if you’re a good candidate for that credit card and what offer is likely to be extended without risking your credit score. If you like the terms, go ahead and apply for the credit card based on the pre-qualification.

The information contained within this article was accurate as of November 6, 2020. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

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bill-hardekopf

About Bill Hardekopf

Bill Hardekopf is the CEO of LowCards.com and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.