As Americans look forward to Black Friday, Cyber Monday and the rest of the holiday shopping season, one thing is for sure — they will be offered plenty of store credit cards. Retailers pitch these cards online and at the checkout counter, often just as a sale is about to be completed. This puts consumers at a huge disadvantage, as they have little time to examine the terms of the offer, and compare it with other credit cards.
So before heading out to the stores this year, shoppers should take some time to consider if these offers will be a smart choice. How shoppers make this decision will depend on what their goals are.
If You’re Looking for a Discount…
One of the major ways that retailers encourage shoppers to apply for store credit cards is by offering a discount on their purchases. After all, it is difficult to turn down an offer to receive a 10% savings on their purchases that day. Nevertheless, shoppers should consider how valuable these discounts are compared with other cards.
For example, a 10% discount on a $1,000 purchase is a savings of $100, while the Chase Freedom card is currently offering new applicants $200 cash back after spending just $500 within 90 days of opening an account. Although cardholders may be tempted to apply for any card that offers a significant sign-up bonus, they also need to recognize that opening up too many new accounts within a short period of time will lower their credit scores.
Furthermore, having too many accounts can be a hassle as cardholders try to manage multiple statements, due dates and payments. Because consumers can’t apply for every credit card they are offered, their best long-term strategy is to apply for only the most competitive offers. And unless shoppers are making a very large purchase, it is unlikely that the best sign-up bonus will be with a store card.
If You Want to Finance a Purchase…
Another reason shoppers can be eager to sign up for store credit cards is for the financing. Store cards are often easier to qualify for than standard credit cards, but they typically carry higher interest rates. For instance, the Target REDcard is one of the best store credit cards, but it still has an annual percentage rate of 22.9% . In contrast, the most competitive low-interest-rate cards can feature rates below 10%.
Another attractive aspect of store credit cards can be 0% APR promotional financing offers. The JCpenny credit card offers 12 months of interest-free financing on new furniture and mattress purchases of $1,000 or more. Yet those who fail to pay off the entire balance before the promotional financing period expires will have to pay 26.99% interest on the entire amount, from the date of purchase.
Alternatively, Citi offers its Simplicity and Diamond Preferred cards with 18 months of interest-free financing on new purchases of any type or amount. And unlike the JCpenney card offer, cardholders will not be liable for interest from the purchase date if they fail to pay their entire balance during the promotional financing period.
If You Want Rewards…
Store credit cards can also attract new applicants with the promise of rewards for spending. For example, the Williams-Sonoma Visa Signature card from Barclaycard offers rewards equivalent to 3% when used for purchases from Williams-Sonoma, but just 1% on all other purchases. Alternatively, the Capital One Quicksilver card offers 1.5% cash back on all purchases, and there are many cards that feature 5% cash back for some purchases from eligible merchants.
That said, some store cards do offer competitive rates of return. An example would be the Pottery Barn card that returns the equivalent of 10% back on Pottery Barn purchases in the form of store credit. Finally, credit card users who carry a balance should keep in mind that rewards credit cards have higher interest rates than non-rewards cards. Those who are trying to pay down debts should make reducing interest charges the priority.
As shoppers continue to receive offers to apply for store credit cards, they need to ask themselves if these products are their best choice. By examining the terms and conditions of these cards, and comparing them to alternatives, shoppers can make the best decision.
At publishing time, the CapitalOne Quicksilver card is offered through Credit.com product pages, and Credit.com may be compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.
Note: It’s important to remember that 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.