These days, more retailers are increasing the number of credit cards they offer to shoppers, and simultaneously boosting the value of these accounts through various perks.
Consumers might be used to hearing offers for many kinds of credit cards when they check out at their favorite retailers. And where, in the past, these cards might have come only with the perk of giving the user 20 or 30 percent off their purchase on that day, many are now adding different types of incentives, such as ongoing rewards programs, low interest rates for the first several months the account is open and discounts on all purchases they make at the store using the card.
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These cards can be a boon to consumers who are responsible with their account management in general, especially if they tend to make a large amount of purchases at the store from which they’re getting their new credit card, but they can also have a number of drawbacks as well.
Perhaps the largest concern a consumer might have when dealing with a store-issued credit card is that they simply do not come with the lower interest rates that borrowers may be accustomed to receiving on their traditional accounts. Generally, it’s acknowledged that store-branded cards are more readily available to shoppers of all borrowing histories, meaning that there are more subprime consumers with rockier pasts using them. To help cover the added risk associated with lending to these Americans, issuers place higher rates on the cards. But the upshot of this is that, if a balance is carried from one month to the next, the charges borrowers face as a result will be significantly higher than if they’d used a traditional account.
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Further, obtaining a store credit card can have a temporary negative impact on a consumer’s credit rating because it takes a hard inquiry, and these are viewed negatively by lenders. In all, the number of inquiries a consumer faces in a relatively short period of time – usually about six months – makes up a fairly significant portion of their credit rating. This can be important for consumers who are seeking other lines of credit, such as a mortgage or auto loan, because it might have an adverse effect on their chances of qualifying.
Image: Rolando.Pujol, via Flickr
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