Just like most people, my shopping habits have changed as e-commerce has grown; instead of going to a physical store location, the vast majority of my shopping is done online. As such, there’s no one standing in front of me asking if I want to save 40% on my purchases today by signing up for a store credit card. Yet, many online stores still offer enticing incentives if you sign up for their card. What can it hurt, right? Read below to find out…
Flying blind
I remember years ago being handed a small brochure that detailed some information on the benefits of a store card; the back page was the application. You completed that and were approved on the spot. So what was most likely to happen when you had a line of people behind you – to read every word of the contract or simply complete the form and receive your discount?
When it comes to signing up for a loan, I don’t sign anything I haven’t read. And I make sure to find the fee disclaimer so there are no surprises. If you search for a credit card, you will be more likely to research the offerings and pick the one best for you. If you are offered a deal, you may be tempted to skip the details.
High interest rates
With the increase in interest rates to battle inflation, interest rates for credit cards rose as well. The average standard card charges 22%. Yet for a store credit card, it’s not surprising to see rates over 30%, with an average at 29%. While most people don’t apply for a credit card thinking they won’t be able to pay off the balance, with a store card you would pay even more than the already exorbitantly high rates on a normal card.
Temptation to overspend
Store cards may prompt you to spend more due to discounts or rewards. Even just offering a discount at checkout can tempt you to spend more since you will save on your current purchase. Plus, many will inundate your phone or email with messages detailing special offers just for cardholders.
Specific to only one store
If you do all your shopping at Target and pay off your card every month in full, the Red Card offering a discount on purchases may make sense. But is there anyone out there who really only shops at one store? Once you have one store card, the decision to get more becomes easier. Suddenly you are having to balance payments on several store cards, which may lead to missing a payment or being unable to pay all your bills in full.
Impact on your credit
Even though you’re approved almost instantaneously, the store still runs a credit check when you apply. While one hard credit check won’t tank your credit, several at a time could. People who open several cards at once are seen as riskier than people who might add a card here and there. Plus, with the lower average credit limit on a store card, if you use it regularly you could run a high utilization ratio, further damaging your credit score.
Be careful with special financing
Furniture stores are famous for their ads spouting no payments for 16 months or until 2026. You may receive a similar offer when you sign up for a store credit card. If you pay off your purchase in the time allotted, you are fine. But if you go one day past your payoff window, most stores will make you pay all the interest that would have accrued from the time you made the purchase. If you had a year to pay off a card and didn’t pay it in full, you could find yourself adding 30% or more to your original purchase price.
Still interested in the store card?
If you are still intrigued by a store card, think through some of the questions raised above:
- Do you visit this store enough to make the card worthwhile?
- Will you pay if off in full every month?
- Is it worth keeping up with another card (and receiving yet another bill at the end of the month)?
- Do you have other cards you can use?
- Will they report it to the credit bureau? You definitely want a good-standing account to push your credit higher.
If you are 100% sure that you will pay off a store credit card, you could use the opening incentive to purchase a large-ticket item. This is a slippery slope – some people even call it gaming the system. It’s easy to think that you’ll pay it off. Perhaps more than just promising yourself you will pay it off, have cash on hand when you make the purchase to immediately pay off the item.
If you are offered a discount for signing up for a store credit card – either online or in a physical store – ask for more information. Take the time to read through their brochure; perhaps even research the store online to see if people have experienced problems in the past with this store’s card.
Or you can do what I do. Simply say no thanks and be happy not to have another account to monitor.
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