29.99% interest? Beware of store cards
That ‘deal’ you’re offered at checkout might be a stinker
Keep a balance on a storebranded credit card at your own peril.
Store cards charge an average interest rate of 23.84%, compared with the 15.18% national average for all other credit cards, CreditCards.com found. Some store cards charge even more, such as Big Lots (29.99%), Zales (29.24%) and Staples (28.24%).
To put that in perspective, if a consumer put $2,000 on an average store card and paid $100 a month, they’d pay an extra $574.37 in interest over 26 months — compared with $321.53 over 24 months for an average, general-purpose card, said Matt Schulz, senior industry analyst for CreditCards.com.
What’s more, the bonuses retailers use to entice people often are lackluster. The CreditCards .com survey found that half of the 100 biggest stores offer sign-up bonuses, but only 13 offered more than $25 for a $200 purchase.
“For the most part, these cards can’t match up with what general-purpose credit cards offer,” Schulz said. “The interest rates are far higher, the rewards are less lucrative.”
Store-branded credit cards do have their uses, as long as they’re used with care, said Mike Sullivan, personal finance consultant with non-profit credit counselor Take Charge America. Store cards are easier to get for people trying to establish or repair their credit; the high interest rates make the issuers less choosy, Sullivan said.
Store cards also become attractive if their sign-up bonus is calculated as a percentage and the consumer uses the card to make a large purchase. But in all cases, Sullivan said, the advantages are only for people who immediately pay their balances in full.
“I don’t recommend month-tomonth use out of any of these cards,” Sullivan said. “Never carry them in your billfold.”
Schulz cautioned buyers to resist pressure at the checkout counter to sign up for cards they don’t really want. Instead, take a brochure, read the details and apply the next time you return to the store, if you still want it.
Sullivan recommended a close eye on store cards’ interest rates and any fees. Annual fees should be deal breakers for people eager for a one-off deal or a chance to rebuild their credit, he said. Cards managed by large, established financial institutions may mean less headaches for consumers.