Insane Interest Rates vs. 15 Percent Off: Should You Get a Store Credit Card?

By on

At checkout registers in department stores across the country, you can expect to receive a smile and a sales pitch. Well, at least a sales pitch.

Store credit cards are moneymakers for businesses, and you can expect clerks to dangle a nice discount in front of you in the hope you’ll apply.

Many of us seem to be taking the bait, with credit bureau Equifax reporting the number of retail-issued cards at a four-year high. During the first half of 2013, more than $46 billion in new credit was issued on store-branded cards.

The discount may be tempting, but are store credit cards a good deal? Watch Money Talks News founder Stacy Johnson answer that question in the video below and then keep reading for more information.

Pros of store credit cards

Store credit cards aren’t all bad. In fact, they can come with some nice benefits. As we see it, there are four major pros for getting a store credit card.

  • Discounts. Not only do you get an initial 10 percent to 20 percent discount when you sign up, you may also be in line to receive extra discounts all year long. Store credit card holders may be the first to receive special coupons or gain access to exclusive sales events as a reward for their loyalty.
  • Flexibility. Some, but not all, store credit cards are affiliated with one of the major credit card companies. That means your department store card can also be used for purchases elsewhere as a regular Visa, MasterCard or American Express card. As a bonus, depending on the retailer’s program, you may even earn rewards points to be redeemed as future discounts at the store.
  • Credit benefits. If your credit score could use some polishing, a store credit card may be able to help. Consistently using and paying off the card will help establish a pattern of good credit habits that can, in turn, boost your score.
  • Financing options. Finally, some store credit cards can be used to obtain 0 percent financing offers. Stores may give you 18 months or more interest-free to pay off a major purchase made with their credit card.

Cons of store credit cards

While there are definitely some nice perks attached to store credit cards, all is not rosy. Here’s a look at some of the negatives attached to these accounts.

  • High interest. By far, the biggest negative associated with store credit cards is their interest rate. Some have APRs climbing to almost 30 percent. And remember that 0 percent financing we discussed? If you don’t pay off your purchase within the allotted time, many store cards go back and apply the interest retroactively. So let’s say you had 18 months to pay off a $2,000 purchase, but you still had a $200 balance at the end of the financing period. The store will then tack on 18 months’ worth of interest to your balance. Yikes!
  • Limited use. Some store cards may offer the same flexibility as a regular credit card, but others can only be used at that particular retailer. In addition, you may have a very low spending limit. Both make it questionable whether the cards are a good deal, particularly when you consider the ding to your credit score that we’re going to talk about next.
  • Credit damage. Your credit score gets dinged slightly every time you have it pulled for a card application, and your score will also suffer if your card balances are too high. The damage can be felt in other ways. When reviewing loan applications, creditors not only consider how much debt you have but also how much existing credit is available to you. If you already have enough credit to go on a $20,000 spending bender, lenders might be hesitant to give you access to more cash.
  • Temptation to spend. Another negative we see with store cards is the temptation to buy more. Stores aren’t giving out cards and coupons to be nice; it’s a strategic business decision. They hope that by giving you a few perks, you’ll come to their store and blow your budget once you see all the great things they have for sale.
  • Better deals elsewhere. As Stacy mentioned in the video, there are credit cards offering signup bonuses good for a free plane ticket, a reward that could be a better deal than 15 percent off one day’s purchases. So when you’re offering up your signature, be sure you’re getting as much for it as possible. (Check out “Not Using Credit Card Rewards? You’re Leaving Money on the Table.”)

The bottom line

So back to the original question: Should you apply for a store credit card? In the past, we’ve told you the answer is no.

However, if you have a store you shop regularly and a card gets you an extra discount, it may make sense. But be sure you follow these two rules:

  1. Buy only what you would purchase even if you didn’t have the card. No extra trips just because there is a “cardmember only” sale.
  2. Pay off your balance each month.

Still, you might want to check out the other credit cards on the market to see if you can find one that offers better rewards with a lower interest rate. You can get all the details on some of the best deals in our credit card section, plus we have dozens of reviews to help you make the right choice.

Do you have a store credit card? What made you apply and do you regret the decision? Tell us in the comments below or on our Facebook page.

Sign up for our free newsletter

Like this article? Sign up for our newsletter and we'll send you a regular digest of our newest stories, full of money saving tips and advice, free! We'll also email you a PDF of Stacy Johnson's "205 Ways to Save Money" as soon as you've subscribed. It's full of great tips that'll help you save a ton of extra cash. It doesn't cost a dime, so why wait? Click here to sign up now.

Check out our hottest deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,138 more deals!

Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.