Store credit cards often have incredibly appealing incentives that make signing up attractive — and all too easy when you’re at the checkout. It’s almost like an impulse buy: Steep percentages off your first purchases? Sounds great! A bunch of dollars down and 0% APR for six months? Sign right up.
But everything, and especially credit, comes at a price: Store credit cards often come with major drawbacks down the line, despite the short-term rosy outlook.
“Usually we tell clients to skip the upfront savings unless they are buying a really big ticket item like furniture,” says Priya Malani, a partner at Stash Wealth. “In that case, open the card to get the discount, pay the card off in full, and then close the card after a few months. The Victoria’s Secret semi-annual sale is not a great time to open their store card even though they are pushing hard.”
Malani says there’s a reason they’re calling your name, and it’s because they know you’re a fan: Unless you have enough willpower to resist charging every time you pass a storefront, you could find yourself in over your head in short order.
Current credit card interest rates hover around 16.5%, and it’s well known that this kind of high-interest debt is should be paid off first. Last year, however, CreditsCards.com found that the average rate for a retail card was 23.84% (or as high as 29.99% in one case) — nearly twice the 2016 average of 15.18%. Default rates have increased at Synchrony Financial, a major issuer of store-brand credit cards. The rise could portend a growing economy — or that consumers are having a hard time paying off their credit card balances. So, store credit cards aren’t necessarily evil but they do have very limited use, says Kimberly Palmer, a credit cards expert at NerdWallet.
“If you shop a lot at one store and you pay your balance in full every month, a store card could benefit you by saving you more money than a general credit card would,” she explains. “But, in general, store cards tend to have low credit limits, high interest rates, and limited rewards. So, if you shop at a lot of different stores, you might be better off with a more flexible credit card instead.”