You’ve heard the checkout line pitch a million times: “Are you interested in applying for our store credit card? You get half off today’s purchase and earn rewards points for future purchases. Sign up right now at the register.”
Sounds enticing this time of year, especially to young credit card novices who are trying to scrimp and save their way through the holiday shopping season.
I well remember the first credit card I ever applied for. It was from Macy’s shortly after graduating college and starting my first newspaper job. I thought I had landed in the big time with a Macy’s card, and I used it so much the card numbers were worn down.
Then reality set it. Several times I couldn’t pay the monthly balance in full, and the interest rate for my transgression was an eye-popping double-digit figure. Mom and Dad weren’t bailing me out either.
It was an early lesson for me in out-of-control spending, and the consequences that came with it. Call it Exhibit A in the pros and cons of handling a store-branded piece of plastic.
While rewards points and lucrative sign up bonuses sound like just the thing to get through the shopping season, don’t be pressured at the checkout line to sign up for a store-branded credit card without knowing exactly what you’re getting into.
While retail credit cards typically don’t charge annual fees, they do charge higher interest rates and generally offer fewer rewards than the bank-branded cards. Annual percentage rates on new retail credit cards range from about 18 percent to 27 percent, according to NerdWallet data.
Basically, retail cards often don’t charge interest on any balance for the first 12 months, hence a 0 percent promotion. But fail to pay the balance in full during that promotion period and you’ll be hit with a bill for all the interest that you would’ve accrued back to the beginning of the promotion.
That said, store-branded cards aren’t all bad, said Rossman, “as long as you always pay in full. Then the high interest rates don’t matter.”
Retail credit cards are often easier to qualify for. The rules for store-branded cards are the same as other cards; age 21 is typically the minimum to qualify on your own, although you can potentially qualify as young as age 18 with proof of sufficient income, Rossman said.
In addition, know where your retail card can be used. Many store cards, for example, can only be used with that retailer or their family of brands. “That can be an unpleasant surprise to credit card newbies who want to use the card elsewhere,” said Schulz.
Rossman agreed. “Especially if this is your first card and you’d benefit from using it more broadly, I’d look for one of these…versions that can be used widely,” Rossman said. “Positive payment habits can help you build your credit score.”
