Store credit

Despite the overwhelming negatives, consumers continue to sign up for store credit cards every year.

It’s that time of year again. Time to remind readers to avoid store credit cards.

Most store-branded cards come with high interest rates. Many offer zero percent deferred interest over an introductory period, but if you can’t pay off your bill in that time frame, you’re on the hook for all of the interest. That’s different from waived interest, though many consumers miss the distinction.

If you charge $500 on a store credit card with a 21 percent interest rate — and make only minimum payments — it’ll take you 10 years to pay it off, and you’ll spend another $700 in interest. And that’s if you can resist the additional coupons and promotions the company sends you without charging anything else on that card.

Despite the overwhelming negatives — including that store credit cards can hurt your credit rating and expose you to greater risk of identity theft — consumers continue to sign up for them every year. Most are enticed by cashiers who offer immediate discounts on their purchases.

Alarmingly, roughly 31 percent of store credit card holders, who’d used a card in the past 12 months, plan to charge 41 percent to 60 percent of their holiday purchases this year to store credit cards, though nearly 16 percent haven’t paid off last year’s purchases and more than 44 percent couldn’t tell you the current interest rate on their cards. Sixty-five percent carry month-to-month balances and 35 percent have maxed out their credit limit.

That’s according to 825 respondents to a recent online survey conducted by Pollfish for LendEDU.

In other highlights, 41.3 percent of respondents report spending extra to reach a discount threshold, while nearly 68 percent have multiple storebranded cards.

High interest rates

Among the most popular store-branded cards, according to the LendEDU survey, are the Walmart Credit Card (which has a 23.25 percent interest rate and offers a $35 one-time discount and 3 percent in rewards), My Best Buy Credit Card (which as a 26.24 percent interest rate and 5 percent in rewards) and the Old Navy Credit Card (which offers a 25.99 percent interest rate; a 20 percent one-time discount; and 5 percent in rewards).

Many rewards on store credit cards expire before holders use them, analysts found.

I admit that two years ago I went against my own sound advice and opened a Kohl’s credit card for a onetime discount at the cash register. I rationalized that I paid off the balance on the spot with my debit card.

I didn’t close the card after the holidays, but cut it up instead, because part of your credit score is based on how much available credit you’re using. So an unused card can help lower that ratio and show longer credit histories.

Meanwhile, carrying a balance of more than 50 percent of a credit line ($250 on a $500 limit, for example) can pull down credit scores and a single late payment can drop a score 120 points.

After I learned that my personal information was compromised in the recent Equifax breach, I did close the Kohl’s card when a free credit report reminded me that I had it. Boy, am I glad I closed it when I did.

On Thanksgiving Day, I got a text alert about possible fraud from TrustedID, a free screening service extended me by Equifax. When I signed on to my TrustedID account, it showed a $0.0 Kohl’s purchase. I think someone tried to use my name and card information.

This time I mean it (cross my heart): Never again will I open a store credit card.