3 Reasons To Avoid Retail Store Credit Cards

“Open a charge account now and you can save 10% on today’s purchases.” How many times have you heard that line from a department store cashier?

The higher the stack in your shopping cart, the more tempting it is to lower your tab by simply saying yes. But beware the store-brand credit card: The immediate savings may not justify the downsides. Here’s why:

1. Higher interest rates. Unlike traditional banks, retail stores have a history of issuing credit cards to just about anyone. That makes it easy for most people to qualify, but it also means the lender will charge a higher interest rate to compensate for greater risk. Many popular retail store cards carry annual percentage rates of 15-20% or more. If you don’t pay off your balance right away, you’ll cancel out the savings gained from your sign-up discount. Chances are the credit card you already have in your wallet has a much lower rate.
2. Credit score blues. As you’re surfing from store to store on a holiday gift-buying spree, for example, signing up for a new card at every stop may be your ingenious plan to save a sleigh full of cash. After all, you can just pay off the cards and cancel them in January, right? Not so fast. The three major credit bureaus advise that multiple credit requests in a short period of time can hurt your credit score, even after you’ve closed the accounts. And a low score may keep you from getting the best loan rates on more important items like a house or car.
3. Poor payback. These days, most people can qualify for a bank credit card that offers cash back, airline miles or other valuable perks. Using a rewards card for everyday expenses, can earn you cash rebates on purchases or points that can be used towards your choice of travel discounts, gift cards at major retailers or free merchandise. By comparison, most retail store credit cards don’t offer rewards, and those that do are usually limited to in-store discounts. Dollar-for-dollar, they just don’t stack up.

Store cards have had a bad rap for years, but that’s not to say they’re always wrong for everyone. There can be exceptions. In fact, some reports show that stores are starting to change their ways, offering lower interest rates and more attractive shopping incentives. And if a store you frequent wants to give you special discounts for using their card, it may be worth considering. As with any credit card, just be sure the power of plastic doesn’t entice you to spend more than you would if you were paying cash.