Resist that new credit card discount

While shopping this holiday season, you might be tempted to save by signing up for retailer charge cards. After all, who hasn’t been enticed by a smiling cashier offering a 20 percent discount on everything you buy today if you’d just take the card.

But think carefully before you agree, especially if you’re about to finance the purchase of a home, car, or other big-ticket item. Taking on new cards can ding your credit score, potentially making it more difficult to get a loan than it already is in the current recession. That’s especially true if your credit score isn’t good to start with.

“If your score is not so hot, it’s in the 600s, and you are trying to improve it, you might want to be more cautious about opening new retail accounts during the holidays,” says Craig Watts, spokesman for Fair Isaac, the company that invented the FICO credit score.

Adding just one new card will cause your score to drop by at least several points for several months. As you add more cards, you may create what Watts described as a “pattern of urgently needing credit,” causing a significant decline in your score. The effects are strongest and prolonged for those who have lower scores.

Along with affecting your cost and eligibility for a loan, a lower score can increase the amount you’ll pay for insurance, since some insurers equate lower credit scores with higher risk. Indeed, after signing up for three new cards one holiday season, one of our staffers was informed by his insurer that the resulting lower credit score made him ineligible for the company’s maximum discount for auto and home coverage.—Anthony Giorgianni