In light of the massive data breach at Home Depot (HD) that affected 56 million of its customers, you might not be so excited to say yes to that Home Depot credit card offer. But let's put that incident aside and look at the company's credit offerings using more financially based standards. Should you say yes when the sales associate makes the offer to you?
Two Different Cards
First, we have to clarify. In its consumer division, Home Depot offers two lines of credit – the consumer credit card and the home-project loan. The home-project loan is a line of credit specifically for a larger project and comes with a 7.99% interest rate and up to a $40,000 credit limit. You can learn more about that here, but for this article, we'll focus on the consumer credit card.
The Pros
Maybe your emergency fund isn't as healthy as you would like, and one winter day you notice that your home is very cold.
You find out you need a new furnace but there's no money in reserve to pay for it. You know that your tax return, due to arrive in about two months, will cover the furnace so you head to Home Depot and put the furnace on your Home Depot credit card.
Because the store will give you a minimum of 6 months on purchases over $299 to pay off the furnace without incurring interest charges, the card is perfect. There's also no annual fee, payments as low as $25 and, according to the literature, you'll receive special offers.
The Cons
There's certainly no perfect financial relationship and that's true in this case. The first downfall of this card is the interest rate. If you have perfect credit, the lowest you'll go is 17.99%, but you could be charged as much as 26.99%.
Next, that 6-month (or sometimes more, with special offers) interest free period isn't really interest free. Home Depot will still charge the interest, but if you pay off your eligible purchases within the specified time period, you won't pay the interest charges. If you're even one day late, all the interest you didn't pay during the grace period is added to your balance. To be fair, that's how most no-interest agreements work with the majority issuers – not just Home Depot.
The Bottom Line
Any card that you apply for becomes part of your credit report and that could lower your credit score, even if you only use the card once or twice per year. (See Will having several credit cards hurt my credit score?) Most personal financial experts advise against applying for store credit cards, primarily because of the high interest rate. But if you run into an emergency where you need to make a big purchase for your home right now, the Home Depot card might afford you the opportunity to pay it in full without incurring any interest charges.
For more on store cards, see Store Credit Cards: Do The Incentives Pay Off? As for dealing with a credit card breach – at Home Depot or elsewhere – see 7 Ways To Protect Yourself Against Credit Card Hacks.
