Imagine this: You’re at the check-out, about to depart with a new pair of jeans, stock or soup pot, baby gift (or whatever) and before you produce your chosen method of payment the clerk says: “Would you like to open a store card and save 20 percent?” You probably don’t even need to imagine it. It happens all the time.
So, before you head into high gear holiday shopping, let us give you a little advice: Pass. Store credit cards now carry an average interest rate of 26.01%, according to a new report from CreditCards.com. That means for every $1 you pile up in debt, you will have to pay more than $1.25 if you carry the balance for a full year. Run the debt on that $100 instant pot? It just cost you $126. Take your sweet time paying off those $150 kicks? They just cost you $204.
What’s the deal? “There is a lot of demand for credit right now,” says Bruce McClary, Vice President of Communications for the NFCC. Since so many people want to open lines of credit, banks (which back the store credit cards) are in a position to offer those lines — specifically credit cards — at higher interest rates so they benefit when you don’t pay your balance by the due date.
But what about the rewards store cards often come packaged with? Special sales? Friends and family? Smart Shopping Expert Trae Bodge of TrueTrae.com reminds us that we have to be careful with these deals. If you get 20% off your purchase when you open the card, you better pay off that balance in relatively quickly — otherwise you start to see those savings fade away.
So, how do you know if a retail credit card is right for you? It’s okay to consider adding them to your wallet only if you can pay off your balance each month. Otherwise, it’s “non-negotiable” Bodge says. In addition, you have to be a frequent shopper of that particular store so the rewards mean something to you. If you don’t meet those two requirements, Bodge recommends staying away.
And if you are going to get one, she also suggests opting for the open loop credit cards (the ones with the Visa, Mastercard, or American Express logos) so you can use them at other stores, too, like a normal credit card. These kinds of cards are great for people in the market for and are a frequent shopper at one particular store. That way, you’re killing two birds with one stone: getting rewards from each swipe at your favorite company and building your credit wherever else you shop. But swiping outside of the card’s store won’t rack up rewards.
Bottom line: With holiday season right around the corner, you can expect checkout attendants trying to get you to open their store’s credit card and reap the benefits it has to offer. The best defense is a good offense. Do some research on the card before you go into the store. If you find that the rewards will benefit you, and you are in a position to open another line of credit, and you won’t carry a balance month-to-month, then (and only then) it is okay to apply for a credit card in the checkout line.
With Rebecca Cohen