Store Credit Cards – What to Know

By: Jessica Zimmer, Debt.com Financial Fitness Trainer

Store credit cards offer bargains for frequent shoppers, but a higher rate of interest than regular credit cards. If a payment is late, a store credit card may sell the debt to an aggressive collection agency. A store credit card is best for people who can pay a balance off in full every month.

Store credit cards can only be used at the store which offers the card. The store creates this line of credit by partnering with a bank. If you have a good credit history or an existing account with the bank partnering with the store offering the card, you may be offered a better interest rate. If you have an account with the partnering bank and think you will get behind on your store credit card payments, think twice about applying for this store’s credit card. You want to maintain a good history with your primary bank.

Many stores partner with large banks. For example, Wal-Mart, Lowe’s, GAP, and Ikea partner with GE Money Bank. Yet some retailers partner with regional banks, such as Bank of Louisiana. A store credit card has the potential to affect your relationship with a regional bank.

Store credit cards usually give rewards that are related to shopping: store credit for a certain amount when you open the account, a percent discount for a limited number of purchases, and special coupons for cardholders. In contrast, regular credit cards give rewards such as travel miles or cashback bonuses. Determine which card will provide you with the more useful reward when you make large purchases.

In the past, you may have seen store credit cards mainly at clothing stores and major department stores, such as Macy’s. Today, a greater variety of retailers offer store credit cards, including Amazon, the Home Shopping Network, PayPal, and OfficeMax.

Store credit cards typically have no annual fee. Yet their interest rate is usually between 20 and 30%. If you get behind on your payments, you may be fined and become ineligible to receive discounts. Often, stores are quick to sell debt to collection agencies. Use regular credit cards if you are not able to pay off a debt in full.

An advantage of store credit cards is that they are relatively easy to get. Think about getting a store credit card if you need to rebuild your credit history or start a credit history at a young age.

© July 31, 2011 // Copyright all material 7/31/2011 by Jessica Zimmer