What Is a Revolving Credit Card in a Department Store?
When shopping in a department store, you may be offered a discount on your purchase if you apply for the store's credit card. This may save you a small amount of money initially, but there may be drawbacks to applying. Understand the terms of a revolving credit card and how it can affect your financial status, both now and in the future.
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Identification
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A revolving credit card is a credit card that's issued by the department store or its lender that allows you to make purchases on the card up to your available credit limit. The card allows you to use that same credit limit again once you pay off the balance, hence the term revolving. This is also called an open-end credit. The payment amount on the credit varies depending upon how much of the credit you use. The card often assesses a finance charge upon the credit amount used and may come with a high interest rate.
Significance
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If you choose to use a department store credit card, you agree to the terms and conditions of the card holder agreement. This agreement covers your responsibilities as a borrower. It also lists such items as the grace period, interest rate, credit limit and any fee or penalties that are imposed in case the agreement is breached. You should read the terms and conditions prior to applying for the card to ensure that the terms are ones that you are comfortable abiding by.
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Considerations
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When you apply for a department store credit card, the lender will check your credit. This will place an inquiry upon your credit report that will remain there for two years. Multiple credit inquiries in a short time span can lower your credit score. According to MyFico, the length of your credit history accounts for 15 percent of your FICO credit score. Each new account that's added to your credit report shortens the overall length of your credit history and this can also cause your score to drop. How much the score drops depends upon the other factors present on your report.
Warning
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It is the cardholder's responsibility to repay the debt on a store credit card. If you are late making a payment, that negative payment history will appear on your credit report. According to Bankrate, one 30-day late payment can drop your FICO score by as much as 110 points. The lender can also turn the outstanding debt over to a collection agency and that agency will also place a collection account on your report. Lenders also have the right to sue you in court for unpaid credit card debt. If the lender receives a judgment against you, they may be able to seize the money in your bank account or garnish your wages.
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