Retail credit cards: What's the catch?
Stores offer you lots of incentives to sign up for their cards. Once the glow of that initial discount wears off, though, are they worth it?
Nearly every retailer wants you to sign up for their co-branded credit card. To entice customers, these offers feature discounts on purchases, interest free-financing options, or both. With the opportunity to save 10 percent, 15 percent or even 20 percent on your purchases that day, what can go wrong? Plenty, if you don't know what you're dealing with.
This isn't to say that store credit cards are always a bad option. These cards can really work if you leverage the rewards and discounts, and if you fully understand the terms and conditions.
Be sure to ask yourself these questions when you're thinking about getting a retail credit card, versus a standard credit card.
Can I find a better promotional offer?
Retail cards can offer some form of interest-free promotional financing, but their offers are rarely as attractive as those regularly offered by major bank's credit cards. For example, the Lowes Consumer Credit Card features six months 0 percent APR financing, but only on a single-receipt purchase of $299 or more. In contrast, the Citi Simplicity Card offers 18 months of interest-free financing on both new purchases and balance transfers, with a 3 percent balance transfer fee. Once approved, there is no minimum purchase requirement to obtain this financing and cardholders can make multiple qualifying purchases from any merchant, not just a single home improvement store.
Can I get better terms?
Retail store cards can also carry uncompetitive rewards, interest rates and terms. For example, many retail financing options advertise that purchases paid within a certain time period are "the same as cash." In fact, interest is being accrued that is substantially higher than competitive credit card offers, but it is waived in the event customers pay off their entire balance by a certain date. Those who fail to pay off their entire purchase before that date could owe interest on their charges retroactive to the date of purchase. This can be costly, especially considering the higher interest rates that retail credit cards tend to carry.
Can I find a bigger discount?
Saving 15 percent on your purchases sounds like a great deal. Certainly, saving $50 or even $100, just for filling out a credit application seems like easy money. But what if you were offered you $200 instead? Other credit cards regularly offer points, miles or cash back that is worth hundreds of dollars.
For example, the Chase Freedom card currently offers new applicants $200 in cash back after they complete $500 in purchases within three months of account opening. Furthermore, this card also offers 15 months of interest-free financing on both new purchases and balance transfers, with a 3 percent balance transfer fee. All of the sudden, a $100 discount may not be as appealing.
Am I missing something in the fine print?
Even when the terms are competitive, one of the biggest problems with retail credit cards is that shoppers usually sign up for one of these products at the cash register. The offer sounds simple when the cashier makes it, and customers are promised a speedy application process, but is the checkout counter really the time or place to make important financial decisions?
When applying for a new credit account, customers should take the time necessary to read through the fine print and compare the costs, benefits and terms against competing products. And needless to say, the written terms of the retail credit card offer will always be enforced over any claims or assurances that the store employees may offer.
How to shop for a good retail card
Customers should take the time to closely examine retail credit cards before applying. Instead of making a snap decision, shoppers can request a written application and review the offer later at home. Those anticipating a large purchase should shop around among multiple retailers, and take into consideration any promotional financing offers available from each store.
Retailers promote their store credit cards because these products are very profitable. But when shoppers know that these products can be inferior to other credit cards, they will take the time to choose the best financing option for their needs.
Finally, before you apply for a credit card, it's a good idea to know what condition your credit is in. A better credit score will typically get you a lower interest rate, and if you tend to carry a balance on your credit cards, a higher interest rate will mean you pay more over time. Being up to speed on your credit standing can help you shop more wisely for credit products, and taking the time to build your credit can make those products available to you at lower cost over time. You can check your credit reports for free once a year, and you can check your credit scores for free every month using tools on Credit.com.
Note: Interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
More from Credit.com
- How to get a credit card with no credit
- How many credit cards is too many?
- How to apply for a credit card
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