SAN ANTONIO — The cash register bells are ringing for holiday shoppers. Often, buyers are asked if they want to save on a purchase by opening a store credit card. We all like giving good gifts for less, but store credit cards come with a catch.
“That’s a big gotcha,” said Ted Rossman, an industry analyst with creditcard.com.
You will likely wipe out any savings if you do not pay off the card monthly.
“You’re probably going to come out behind, because typically even carrying interest for a short amount of time is probably going to outweigh the earnings that you might get from rewards,” Rossman said.
That interest can add up, quickly. Here is how:
“They’re known to usually have pretty high interest charges. Some of them are close to 27% APR, which is much higher than the industry average across all credit cards,” said Greg Mahnken, an industry analyst with Credit Card Insider.
Also, watch out for store cards that offer you a 0% or low-interest rate for an introductory time period.
“If you have any balance left, even a dollar, and you go past that promotional period, these deferred interest offers will usually charge you interest on the original balance from day one,” Mahnken said.
That means you will pay interest on the full price of your purchase.
“You’ve got to do the math," Mahnken added. "Because the minimum payment might not be enough to pay off that balance within the time period."
A store card also counts towards your credit score.
“Don’t apply for it on a whim at the checkout. You definitely want to make this a thoughtful decision,” Rossman said.
A different type of card might offer better terms.
“If you qualify for a 0% APR introductory credit card, this is a non-retail store card. This is from major issuers like, say, Discover or American Express or Citibank,” Manhken said.
Credit Card Insider found that 40% of people who got a store credit card regretted applying for it. See the survey here.
Find some of the best retail store cards here.
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