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As we enter the holiday season, many shoppers are being asked to consider opening an account at nearly every retailer they visit. But with hundreds of retailers offering their own co-branded credit cards, we realized that we couldn’t possibly review them all for our Best Credit Cards in America series. So how can consumers find the best retail credit cards? Consider the following factors:

Credit Cards vs. Store Charge Cards

In the old days, customers could simply ask a shopkeeper to “put it on my tab,” and pay for their purchases in the future. Later, stores started offering charge cards that performed largely the same function. Today, some stores offer a store charge card like the Target Red Card that offers discounts on in-store purchases but is not part of a payment network such as Visa or MasterCard. Other retailers offer true credit cards that are co-branded with banks. For example, the Outdoor Rewards card offered by Bass Pro Shops and Bank of America can be used anywhere that Visa is accepted. Clearly, a credit card that is part of a payment network is far more versatile than a charge card that can only be used at a single merchant.

Sign Up Discounts and Bonuses

Retailers have had great success attracting new retail card applicants by offering them a discount on their purchases. Typically these offers are for a 10% discount on their in-store purchases that day. These offers can be attractive when making large purchases, but consumers should avoid them if they only stand to save less than a hundred dollars. This is because the majority of reward credit cards will offer at least $100 as a sign up bonus and often more valuable points or miles. If cardholders are going to apply for new credit in order to receive a bonus, they should at least look for the most competitive offer rather than accept a retailer’s card at the checkout counter.

Spending Rewards

Those who pay their credit card balances in full and on time should expect some kind of credit card rewards in exchange for their loyalty. The minimum rewards that cardholders should expect is 1% cash back on all of their spending, and at least 2% from the retailer offering the card. Retailers that offer credit cards with a lower percentage of rewards are not offering competitive products. For example, the 1-2-3 Rewards card from Kroger stores offers one point per dollar spent on most purchases, but their points are only worth a half of a cent each towards grocery purchases at their stores.

Promotional Financing

Another lure of retail credit cards is the offer of 0% APR promotional financing. Here, consumers need to pay especially close attention to the terms and conditions. Unlike promotional financing offers from standard credit cards, these “same as cash” offers will often accrue interest that is only waived when the entire purchase is paid in full before the promotional financing period ends. This can leave customers with a large lump sum to pay in order to avoid a large interest charge. And like sign-up bonuses and spending rewards, cardholders should compare retail cards to other competing products. Cards like Slate from Chase are not branded by any retailer, but offer 15 months of interest free financing on new purchases and balance transfers.

Standard Interest Rates

When it comes to standard interest rates, retail cards rarely compare favorably against other credit cards. Some products such as the Iberia Bank Visa Classic card offer interest rates as low as 7.25% APR, while retail cards like the Lowes credit card charge 24.99% APR or the JC Penny credit card that charges 26.99% APR. Credit card users who tend to carry a balance should pay extra attention to the standard interest rates before applying for a retail card.

Conclusions

Retail credit cards can be a good deal, so long as they are competitive with other products. Unfortunately, a retailer’s check-out counter may not be the best place for consumers to sort through these decisions. By taking the time to consider all of these important factors, shoppers can emerge from the malls with the best deals, even if they have to say no to a retailer’s card.

Image: cote, via Flickr

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