Have you ever been targeted with tempting offers to sign up for store credit cards? Well, you’re not alone. Most retailers post signs throughout their stores, display pop-ups on their websites, or even have cashiers request that customers sign up for a store credit card at checkout to receive better offers and deals.
Retailers know how to persuade customers with attractive discounts, such as “Sign up and get 30% off your next purchase.” These offers can appear great, especially if you have a shopping cart loaded with items already. However, here’s when you need to take a step back, because most store credit cards are not as attractive as they appear to be.
High Interest Rates
As a credit card holder, interest rates are the price you pay for borrowing money using your credit card. Typically, this fee is tied to an APR (Annual Percentage Rate) that is charged based on the outstanding credit card balance. Did you know that store credit cards often have higher interest rates, with APRs exceeding 25%?
If you carry a balance on the card, the sign-up offer would be worthless, as no money would be saved. In fact, carrying a balance would mean that the interest fees keep adding up.
Limited Use Beyond The Store
Sometimes, store credit cards are only used for purchases with that retailer’s family of brands. If you want to apply for a store credit card, ensure it can be used at more than just that one retailer. You can tell if the card has extended use if it features the logo of a major payment network, such as Mastercard, Visa, or American Express.
It Can Impact Your Credit Score
Here’s the thing: when you apply for credit, it results in a hard inquiry on your credit report, which can temporarily lower your score by a few points. This is a one-time impact, so applying for a few credit cards won’t make a significant difference. However, applying for several store credit cards within a short period can have a substantial and lasting impact on your credit score.
Poor Long-term Value
People often apply for store credit cards because the deal appears to offer them a way to save money. And who doesn’t want to save a few extra dollars? However, it’s essential to note that this one-time discount can only provide a benefit if your purchase is substantial enough. Ultimately, most of these offers are capped.
For example, if you open a store credit card at X store, you can save 30% on your purchase that day and the next. However, the savings cannot exceed $100. This offer is beneficial if you plan to purchase items worth $500, as it can significantly reduce your total bill. But if you’re spending more or less, then it may not be worth it.
You must consider the long-term implications of using the store credit card. Ask yourself how often you shop at the store. If you’re only there a couple of times a year, getting a store credit card will offer you no reward.
Sneaky Add-ons And Surprise Charges
We know that most credit cards offer a 0% intro APR promo that allows you to use the card interest-free for a specific introductory period. After that, the card will charge a standard APR on the remaining balance.
On the other hand, store credit cards offer a different type of no-interest promotion, where interest is not waived, but instead deferred. This can be dangerous because, with a deferred interest promotion, you can use the store credit card interest-free for the entire promotional period; however, interest will start accumulating as soon as you make a purchase. So, if you have a remaining balance when the no-interest period concludes, you will be charged interest on the original purchase amount, not just on the remaining balance.
Limited Rewards
Credit cards offer rewards, such as cash back on each purchase, but store credit cards typically have a much narrower reward threshold. Therefore, rather than receiving a percentage of cash back on certain purchases, only full-price or in-store items are eligible for rewards.
Alternatives To Store Credit Cards
A store card can certainly look tempting because it often comes with more lenient credit score requirements. However, secured credit cards are a better option. The best secured credit cards allow you to earn rewards, cash back, and travel benefits, and the long-term perks are far more attractive than those offered by store credit cards. Additionally, a secured credit card requires a cash deposit that serves as your spending limit, which can help prevent you from accumulating debt. Other options to consider are prepaid credit cards or reputable pay-later services, such as Afterpay and Klarna, that allow you to break up your purchases into smaller installments.
Final Thoughts
Store credit cards have a somewhat notorious reputation for having less-than-stellar terms, including high interest rates, low credit limits, and limited usability. However, they’re not a terrible option altogether. For example, if you’re a frequent shopper at a large retailer like Walmart, Amazon, or Target, you can reap some benefits from their store credit cards. This, of course, depends on how responsible you are as a cardholder. If you don’t pay off your balance, you could be hit with high APR rates.
While these offers and discounts are great at first glance, as a consumer, it is imperative that you only buy things you can afford. The interest rate on the balance can completely negate the money you thought you saved, leaving you with a bigger bill than the original purchase cost.
