Retail store rewards credit cards are often the “genesis” of long-term financial issues, according to financial planner and author Bryan Kuderna, as they are typically designed to make you spend more than you save.
These credit cards are frequently offered to customers at a point of sale, rather than requiring them to go to bank or fill out an application. As such, the offer often “rope[s] in” unprepared consumers, who make the choice based on the savings they get that day.
“With these kind of point of purchase offers, there’s not time for homework,” Kuderna said. “Some people just say, ‘I didn’t intend on opening a credit card, but now here I am. I opened a card and now what is that going to be in over the next two years for myself, my budget and my credit score.'”
The cards also hit a person’s credit score, starting with the credit inquiry. From there, high interest rates, inactivity clauses and late payment fees can tank someone’s personal finance. “Oftentimes these type of cards have a low credit limit, which means as you use it, your utilization ratio looks very high, which is not good,” Kuderna said. “And then, if we’re not using the card for a period of time, they may end up just closing the card on us, which then reduces our credit limit. Again, not good for our credit score.”
