You’ve probably encountered a very tempting store offer that says, “Save 20% on this purchase by applying for our store credit card!” at some point and wondered if you should go for it. Almost every major retailer has its own store credit card, and the odds are you’ve been offered to apply for one more than once.
Of course, it might appear to be an excellent choice at first glance. Who wouldn’t want to take advantage of discounts on their first purchase, earn rewards at that store, and even get 0% interest financing on huge purchases?
Stop! Don’t fall for these false promises!
All these impressive offers are only a ploy to reel consumers in. Remember, this is one situation where first impressions can be deceptive. Despite the apparent benefits, store credit cards rarely provide any long-term value. They have some significant drawbacks when compared to the non-store-branded cards. Here’s why:
It Can Lower Your Credit Score
When you apply for a store credit card, you will receive a “hard inquiry” on your credit file. Applying for many store cards can lower your credit score because you are piling up on potentially damaging inquiries.
Even if you open a store credit card only for the promotion and close the account soon afterward, the damage is done.
Offers Only Limited Rewards
Store credit cards offer rewards on store buys that aren’t very valuable. For example, a Gap credit card rewards five points for every dollar, but this is only for purchases made at Gap Inc. brands. So, if you spend an average of $100 per month with this brand, it only adds up to $60 in rewards at the end of the year, and that, too, can only be used for store purchases!
Your card’s rewards are just another trick the store uses to lure consumers to shop with them. So unless you spend hundreds of dollars at the same store every month, you’re better off getting a credit card with better bonus categories.
The Perks are Limited
When you purchase through store credit cards, you don’t get extra perks that you can get through other reward cards. With a store credit card, you’re unlikely to get benefits such as extended warranty coverage, purchase protection, travel insurance, and balance transfer offers.
0% Interest Offers Are An Expensive Mistake
Most store credit cards feature a promotional 0% interest offer for a specific period, such as one or two years. While this may seem like an excellent deal, these are only deferred interest offers. This means that you need to pay off the total amount charged within the offer’s timeframe. If you fail to do this, the store can charge all the interest you would have paid from the start.
Besides, offers such as this can tempt customers to buy expensive products they don’t necessarily need simply because they can finance them at 0% interest.
Sign-up Bonuses Are Very Small
Consumers are enticed to get a store credit card by offering a sign-up bonus. You will be told that you will receive 10-20% off on your purchase if you get the card. While this sounds great, you should compare what that store card provides. For example, if you make a $300 purchase, a store credit card will offer 20%, so your sign-up bonus is $60. But so many cards come with sign-up bonuses worth hundreds of dollars that require meeting a spending minimum – you just need to shop around and find the best deal!
Higher Average APR
Did you know credit card debt is far more expensive with store credit cards? This is because these cards have higher interest rates. A report found that the average APR for non-store-branded credit cards was 20.3%, while store credit cards had an average of 26.4%.
The perfect strategy for credit cards is to avoid carrying a balance so that you won’t be charged interest. But if you’re unable to pay your entire credit card bill, store credit cards can cost you more money.
Bottom Line
While we have discussed why you should avoid store credit cards, it should be noted that they have some decent benefits, too. However, these benefits are nothing when compared to regular credit card offers. Yet, people sign up for them because store cards are easier to be approved for.
If you have considered getting a store credit card, take some time to compare it with the general-purpose cards first. Once you do, it will be easy to see why getting non-store-branded cards is far more suitable. Moreover, store credit cards provide little real value to your wallet. But if your spending habits are such that you generally spend hundreds of dollars at a specific store each month, it could be worth the consideration. Ultimately, it’s all about ensuring you use your store credit card to leverage purchases with the rest of your credit card lineup!
