Consumer Alert: Before you open a store credit card, read this!

ROCHESTER, N.Y. (WHEC) — Store credit cards. The clerk at the checkout counter nearly always asks whether you want to open one. It’s especially tempting while holiday shopping, especially when they say things like, ”You could save 15% on your purchase today if you open a store credit card.”

And if you’re like me, you stand there silently doing the math in your head and then you ask yourself, “Is it worth it?”

There’s a lot to think about when considering a store credit card. Interest rates are always higher. So you definitely don’t want to hold a balance on a store card. Also, credit limits are always lower. So when you open a new card, your credit score may take a hit. Why? It’s because that new card can affect your credit utilization ratio.

"The charge on that account, especially if it’s a low limit card, affects what we call your credit utilization score or your balance to limit ratio,” said Rod Griffin, Senior Director of Consumer Education and Advocacy at Experian. "It’s the second most important thing in your credit score. You don’t want high balances on your credit cards."

Often consumers don’t understand that maintaining a balance that nears your credit limit really hurts your credit score.

"The term utilization or utilization rate is just a big word for what your balances are compared to your credit limit,” Griffin explained. “So if your balance is really high compared to your limit on your credit card, it’s going to hurt your credit scores."

Here’s an example: Let’s say that my co-anchor Brett Davidsen is Mr. Money Bags. He has a great income and credit history, allowing him to get five credit cards each with limits of $20,000. That means he has a total credit limit of $100,000. Let’s say he’s carrying a total balance of $10,000.

So if you divide Davidsen’s debt of $10,000 by his credit limit of $100,000, he has a credit utilization rate of 10%.

But let’s say I have two credit cards each with a limit of $5,000 giving me a total credit limit of $10,000. Let’s say I have $5,000 in credit card debt which is half of what Davidsen owes. But if you divide my debt of $5,000 by my credit limit of $10,000, I have a credit utilization rate of 50%.

That’s bad. And it will lower my credit score. Experts say your credit utilization rate should be no more than 30%. So if you make a big purchase on that store credit card with a low limit and you maintain a balance, you could hurt your credit score.

But there are times when a store card is a good idea. For example, if you’re making a big purchase and the store is offering you a period of no interest rate, and you can pay the card off during that period, that’s a great time to get a store card. Click here for NerdWallet’s examples of situations in which a store credit card is a good idea.

This is for sure: It’s rarely a good idea to make a snap decision about a credit card in the checkout line.