How to spot a good store credit card and a bad one

By Jaime Hanson

Store cards aren’t all bad – a good one can be used anywhere, not just in a store, and you can get a substantial discount on a major purchase.

This article is reprinted with permission from NerdWallet.

As the holiday shopping begins, many of us will be confronted at least once at the store checkout: “Would you like to save 25% off your purchase today by opening a credit card?”

The specific benefit or discount may vary, but retail clerks across the country will generally follow a familiar business script, promoting their store’s card as a convenient way to fund purchases while saving you money. money. And the pressure can be strong.

“You are checking, there are 10 people behind you. In this process, what kind of information do you get?” asks Wei Zhang, senior director of the credit card program for the Consumer Financial Protection Bureau. “How long did you have to process this information?” »

To know if this is a good offer, it is useful to understand the advantages and disadvantages of store credit cards, their strengths and weaknesses, their advantages and their risks.

Read: In tough times, credit card mistakes can hurt you the most

Why You Might Want a Store Credit Card

Store credit cards tend to suffer from the same drawbacks: higher annual percentage rates than general purpose credit cards from major issuers and lower credit limits, as well as inflexible rules governing where they can be used and how rewards are redeemed. But because of these drawbacks, store credit cards are generally easier to obtain, which can help those with less than stellar credit.

“For people who don’t have a credit history, or aren’t very good, the retail store can be a place to get a card and build your credit history. But there’s a big if” , Zhang said. “They need to make payments on time. Otherwise, like with any other credit card, late payments will hurt your credit.”

In other cases, a store credit card can help you pay for a large necessary expense, with a percentage discount or through a “special financing” offer. While the latter isn’t without risk (we’ll get to that later), if you stick to the terms, you can avoid interest.

These types of savings can be especially useful at this time of year. Holiday sales hit a record $886.7 billion in 2021, according to the National Retail Federation, and early indications suggest another record performance may be ahead. Any chance of covering these costs may seem attractive.

Plus: Be Prepared for These Questions When Applying for a Credit Card

So what makes a good store credit card?

Don’t reject an initial discount right away. Even if it’s a one-time deal, a store card that gives you, say, 40% off a large, planned purchase could be a great deal. Other store cards offer value in the form of smaller but ongoing discounts: for example, free shipping or 5% off every trip to the store.

Beyond discounts, several major retailers offer store cards with rewards that rival those of general-purpose credit cards: for example, 5% cash back on in-store purchases, plus 3% cash back in everyday categories, such as food and gas.

A quality store credit card will be an open-loop product, meaning it can be used anywhere, not just in a store. You should also look for rewards that are easy to redeem and don’t expire. Cashback is ideal.

As with any credit card, pay your balance on time and in full each month if possible. If you have a balance on a store credit card, the high APR will erase the value of all rewards.

Also read: How do cash advance apps work and are they better than payday loans?

Warning signs of a bad store credit card

Here are some common red flags for store credit cards:

Read next: How to prepare for a recession if you’re struggling to pay rent, food and utilities

Take the time to think about it

In a long, busy line, you may feel like you don’t have time to carefully weigh the pros and cons of a store credit card. And you may not get the best information at the moment.

“The store clerk may not be able to fully articulate the terms and conditions,” Zhang says. After all, he adds, “they are not financial specialists”.

Even still, ask questions and read the terms of the card carefully, as you would for any major financial decision. As a rule of thumb, if you didn’t walk into the store planning to open a store credit card, you probably shouldn’t walk out with one either.

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Jaime Hanson writes for NerdWallet. Email: [email protected]

 

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11-03-22 0501ET

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