11/20/2012 5:15 PM ET|
How to size up a store credit card
Clerks routinely ask whether you're interested in signing up, stressing the advantages. Here's how to tell if the card is a good fit for you.
The list of questions you get asked at the checkout counter seems to grow every year. In addition to the standard, "Did you find everything you're looking for?" inquiry, customers may also be asked to donate to charity and to hand over an email address for store newsletters. Another common question: "Would you like to sign up for our store credit card?" -- to which millions of Americans each year say yes. According to a recent report by Equifax, more than 175 million retail credit card accounts are open nationwide, a 31-month high.
Such cards are usually packed with perks. Signing up might mean a big discount on whatever you're buying; the store card may also provide you with discounts on future purchases. But like other credit cards, these retailer-branded cards often have terms that can get you in trouble if you don't understand them fully. Here’s what to look out for if you're thinking of signing up for one of these cards:
Consider the rate
As with any credit card offer, the interest rate is the most important number. That's especially true of store-brand cards, which can carry high rates.
"If you're a cardholder that tends to carry a balance, then you should be looking at the rate," says Ruth Susswein, deputy director of national priorities with Consumer Action, a consumer advocacy nonprofit. "Generally, the rate tends to be a good bit higher. And if you're someone who's going to be paying the balance off over time, that matters."
Credit.com personal finance expert Gerri Detweiler agrees that you're likely to find the interest rate to be higher than what you'd get on a standard credit card from your bank.
"Every retailer card will fail the test if you compare the rate to what you could get with a regular credit card," she says.
Susswein also points out that applying for a new credit card account will ding your credit scores, especially if it's possible that you'll be denied. If you think there's any danger of denial, or if you're going to be taking out a mortgage in the near future, you're probably better off passing.
Consider the perks
If store credit cards have higher interest rates than average cards and could lower your credit scores, why would you sign up for one?
The perks, of course.
The rate, and the kind of interest payments you're likely to make if you carry a balance, should be weighed against the deal being offered by the retailer. A significant discount for opening the card, plus a recurring discount every time you use it at the store might make it worth it getting.
"If this is a place you shop regularly, it could be a way to get a regular discount," Susswein says. If the store card gives you 5% off at that retailer every time you use it, that's better than the 1% to 2% cash back you'll get from a typical rewards card.
The more lucrative benefit, however, is likely to be the discount you get at the point of sale. With such percentage-off deals, the bigger your purchase, the bigger the benefit.
"If you're buying $100 of merchandise at a department store, that would not be enough to motivate me to open a new store card, but if you're buying $5,000 worth of appliances, it's a different story," says Detweiler.
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