Department Store Credit Cards: Just Say No

What's Hot

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

How a Mexican Tariff Will Boost the Cost of 6 Common PurchasesFamily

This Free Software Brings Old Laptops Back to LifeMore

How to Protect Yourself From the ‘Can You Hear Me?’ Phone ScamFamily

Report: Walmart to Begin Selling CarsCars

Where to Sell Your Stuff for Top DollarAround The House

Is Your TV Tracking You? Here’s How to Tell — and Prevent ItAround The House

11 Staging Tips to Help You Get Top Dollar When Selling Your HomeAround The House

21 Restaurants Offering Free Food Right NowSaving Money

20 Simple Hacks to Make Your Stuff Last LongerAround The House

4 Car Insurers That Might Raise Rates Even When the Accident Wasn’t Your FaultCars

How to Invest If Trump Kills the ‘Fiduciary Rule’Grow

12 Surprising Ways to Wreck Your Credit ScoreBorrow

9 Secret Ways to Use Toothpaste That Will Make You SmileAround The House

The 2 Types of Music That Most Improve Dog BehaviorFamily

Whether you're trying to build credit or just get a discount on a purchase, we've all been tempted to sign up for department store plastic. But maybe this is a temptation you should resist.

This post is from partner site

We’ve all been tempted by the immediate benefit – save 10 percent or maybe even 15 percent on your current purchase when you apply for the store’s credit card.

But this isn’t a wise financial move for most consumers.

Most retail stores offer credit cards with interest rates between 23 percent and 30 percent, much higher than bank-branded credit cards. According to the Weekly Credit Card Rate Report, the average advertised APR last week among the nation’s 1000-plus credit cards was 14.04 percent.

Some cards, such as the NAPA AutoCare Easy Pay and the Lane Home Furnishings Credit Card, are charging a jaw-dropping 30 percent interest on credit card purchases. Both Goodyear and Zales have 28.99 percent APR on their cards; Office Depot Personal Credit Card charges 27.99 percent; Sears charges 25.24 percent; and Macy’s credit card has a 24.50 percent APR.

Retail cards, also known as private label credit cards, carry higher interest rates than bank-branded cards because they tend to be held by riskier borrowers with fewer credit options. Issuers suffered significant losses on these private label cards during the financial crash of 2008. In fact, General Electric and Citigroup, two of the largest issuers of private label cards, indicated that they wanted to sell off their private label business but both failed to find a buyer.

But in the past year, default rates have dropped significantly and private label cards with high rates are more appealing for banks and issuers that need the revenue. According to The Wall Street Journal, Wells Fargo is considering getting into the private label business. Packaged Facts forecasts receivables for private label card programs to reach $152 billion by 2015 (down from the pre-recession of $156 billion in 2007).

There are plenty of reasons to avoid these retail credit cards:

  • Extraordinarily high interest rates apply to every applicant, no matter your credit score. If you use the card to pay for a purchase and know you can’t pay it off, you should add in the cost of your interest penalties to the price of your purchase. If your interest rate is 29.99 percent on a card with a $500 balance and you just make the $20 minimum monthly payment, it will take three years to pay off your balance and you will pay $295 in interest payments. Instead of paying $500 for the purchase, you are paying almost $800.
  • Retail cards can pull down your credit score. Retail cards usually have low credit limits since merchants want to minimize their financial risk. If you carry a balance, this will increase your credit-utilization ratio, which is an important factor in your credit score.
  • If you apply for multiple retail cards, this can also pull down your credit score for two reasons. Opening these store accounts will lower the average age of the cards in your credit history, and the length of credit history accounts for 15 percent of your credit score. Secondly, every time you apply for a card, the issuer may pull your credit score, which is a “credit inquiry.” Too many credit inquiries can lower your credit score.
Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!


Read Next: 2 Key Credit Card Trends That Will Affect You in 2017

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 1,791 more deals!