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New credit card could hurt credit score

November 22, 2010 12:00:00 AM PST
Most people who go shopping for gifts this holiday season will likely be asked to open up a credit card account on the spot. If they do, then they will get a substantial discount on what they're buying that day, but is it wise to do so? Store credit cards have become one of the most popular store promotions. Sometimes an offer like that can really pay off, but other times it could just do the opposite.

Depending on where you shop, there are discounts from 5 to 20 percent on purchases made on the day the new account is opened. In some cases, the discount could carry over to the next day or even longer.

For example, you get 5 percent off all purchases if you open a Target credit or debit card not only the day you sign up but every time you use it. At Macy's, you get 15 percent off the day and the next day you open a new credit card account. A new card with Kohl's gives you one of the highest discounts at 20 percent off the day you open the account.

It's all very enticing, but vice president and senior financial analyst of Bankrate.com Greg McBride said not to take the bait without thinking about it.

"If you're going to be in the market for a mortgage or a car loan in the next six months or so, you might want to steer clear. The reason being, every time you apply for a credit card, it actually has a short term impact on your credit score and you don't want to do anything to undermine your credit score," said McBride.

Author of "The Road to 850," Al Bingham said the FICO credit score formula is a mystery for most consumers.

"They go to their credit report and it's so overwhelming. They don't even know how to read or understand their credit report. It becomes a huge challenge," said the author.

Bingham said one thing people should all be aware of is that opening up new credit cards will lower credit scores.

"A lot of disciplined consumers do exactly this: they open up the card, take advantage of the discount and then very shortly thereafter, close the card," explained McBride.

The key is discipline. There must be enough discipline to close the account in a timely manner. One thing to remember is opening any credit or debit account is subject to approval and there are some restrictions on any purchases made.

Stores that offer credit card discounts

  • Macy's - 15 percent (Nov. 22-23)
  • Wal-Mart - Spend $100, get $20 credit on first month statement (online only)
    - If your total purchase in one transaction is $299 or more, that charge is placed on a 12-month interest-free promotion. You can also do that as many times as you want in the first year as long as total transaction on reveipt is more than $299 you will not be charged interest.
  • Sears/Kmart - $10-$15 off first purchase in-store only
  • SAKS 5th Avenue - 10 percent
  • Bloomingdale's - 10 percent off (Nov. 22-23)
  • Toys R Us - 10 percent off (Nov.22)
  • Target - 5 percent off
  • JCPenny - 10 percent off and $10 off (Nov.22)
  • Kohl's - 20 percent off (Nov.22)
  • TJMaxx - 10 percent off your first in-store purchase
  • Marshalls - 10 percent off and 5 percent rebate on your first in-store purchase
  • Nordstrom - $100 spent on first transaction, send $20 note in mail
  • Best Buy - No interest for 18 months on purchases over $429
  • Victoria's Secret - Coupon book in mail ten days

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