Never Subscribe to Store Cards in the Registry
“Want to sign up for our credit card and save another 10% on your purchase today?” I’m sure you’ve heard this phrase before when you pay for your new jeans or any new toy that kids are in awe of these days. If you haven’t been to a major store for a long time and plan to make the annual holiday shopping pilgrimage, get ready for the tough credit card sales of the store. You may be interested in learning about these additional one-time savings or promised money back rewards. But it probably isn’t worth applying for a new credit card to get these benefits.
The average interest rate on a retail credit card is 26.01%. This is compared to the average annual interest rate for conventional credit cards, which is 21.1%. Creditcards.com tested 88 credit cards from 64 stores to rate the store’s card and found that store-only credit cards – the ones you can only use at that store – have an average interest rate of 23.29%. Several chains, including Zales, Discount Tire, and Big Lots, have a 29.99% interest rate on their store cards.
These interest rates have risen over the past few years in line with the rate hikes approved by the Federal Reserve. Back in 2014, Creditcards.com notes, the average annual interest rate on a retail credit card was 23.23%; in 2018 – 25.64%.
Why would anyone apply for a credit card with an interest rate of about 30%? Because sometimes it feels like a deal. As part of its annual store credit card review, Creditcards.com surveyed 2,400 adults about their reasons for applying for store cards. The main reasons for getting a retail card were a discount or signup bonus (59%) because they like the store (31%) or because the card was easy to get (29%). Eleven percent of the respondents asked for help because they felt pressure from the cashier.
I love registration bonuses too. It’s like having extra fun. But all too often, retail credit cards are a terrible deal. They target people who don’t have a star credit or have never had a credit card before, and they often have complex interest offers that can void any rewards you earn. But retail credit cards remain popular – in the last holiday season, three in 10 Americans applied for one, according to a survey by CompareCards .
Before the cashier triggers a mandatory credit card payment at the checkout, here’s how to prepare to evaluate a store’s credit card offers.
Think about how you will pay before shopping
Before you go to the store or sit at your computer, think about payment options for a large purchase. If you need to use a loan, do you have a zero interest card offer? If so, use this before considering any card the store has to offer.
If you’re interested in finding out about the store’s credit card offers, you don’t have to wait until you get up at the checkout counter to be spotted by the cashier who so desperately needs a credit card subscription to meet their quota. Whatever discount or reward is used to entice you to apply does not apply solely to the checkout. The merchant’s website will provide all the information on store-only or co-branded cards, allowing you to know about interest rates and deferred interest periods.
Pay special attention to these deferred interest rate offers that can lure you in with a promise of 0% per annum over a period of time. At the end of a deferred interest offer, you are often charged the regular interest rate retroactively — for the entire purchase, not just any balance.
This is a pretty unique way to store credit cards. A typical credit card will indicate that after an initial 0% period, you will be charged the normal interest rate in the future.
Calculate the potential cost of earning rewards
Loyalty programs are becoming more competitive to try and earn your loyalty, and this extends to those who are tied to the store. Amazon, Target, and Best Buy are offering 5% “back” to users of their top credit cards, whether in the form of a discount or a credit statement. This is great if you plan to never carry a balance with you. But if your holiday finances don’t work out the way you planned, you may end up owing more than what you received as a discount.
Let’s say, for example, you spent $ 200 at Target on your RedCard, which offers 5% off. You get $ 10 from this purchase. Happy Holidays, all of you.
But not to pay right away. You let that $ 200 carry over to the next month. RedCard has an interest rate of 24.9%. You will have to pay about $ 4 in interest if you pay $ 25 right away and leave the rest for the next month. If you only pay $ 25 per month before the bill is paid in full, you will pay $ 14 in interest.
All of a sudden, the $ 10 rebate you received on your account seems like a bad deal, right?
This is because it was a bad deal for you. No small discount or cash-back reward is worth the dauntingly high interest rates on store credit cards. I am not saying that these are the worst in the world and should not be received by anyone. But you should be careful when studying card offers and resist the light-hearted and festive urge that can arise on a whim.
Instead, see if there is a loyalty program that you can join without opening a credit card. More and more retailers are adding them – Macy’s and Target, to name just a couple, for example – so customers can be rewarded no matter how they pay.
This post was originally published on 10/10/2019 and was updated on the same day to adjust the interest calculation.