Store credit cards are usually low-balance cards, which you can only use at the store through which you opened the line of credit. If you’re new to credit, or trying to rebuild your credit, these cards can help, as long as you pay off the balance each month. However, there are some drawbacks.
Retail store credit cards are known to have high interest rates. The average annual percentage rate on credit cards from some of the largest retailers in the United States is nearly 25 percent, according to a 2017 survey by CreditCards.com. That is an expensive debt to carry.
Of course, not everything about these credit cards is terrible. They offer some additional benefits to keep this type of credit line open. Some retailers will offer special incentives or rewards agreements.
Why shouldn’t you apply for store credit cards?
You shouldn’t apply for store credit cards when you don’t understand confusing terms and conditions. Also, expect to pay more than you should if you don’t pay your balance on time; stores actually trust you to fall into that trap.
Stores are making the offer of credit cards, because it will benefit them financially in a number of ways. The store hopes to make money financing your purchases, but it also expects you to come back to spend more and more, using easy credit. And let’s not forget the high interest rates.
Stores will offer you discounts on purchases later, if you order now. These discounts, which are sometimes 10% off but sometimes 25% or more, seem like a lot.
However, any discounts offered to you at the time of application and purchase are largely calculated as compensation for the increased revenue of the company using the card.
The store makes more profit by putting the card in your hand. This means that the discount will cost people more in the long run.
Store-branded credit cards have attractive offers, which can cause shoppers to buy things they might not want or need, just to get another offer. Often times, they are not worth it. According to a LendEDU study [ 3 ], more than 41 percent of people with store credit cards say they have spent more money on their cards just to earn a reward offered by the store. More than a quarter of those surveyed note that they have been hit with unexpected charges on their cards.
But if you’re shopping smart, you can make store cards work for you.