It has been said that nothing in life is certain but death and taxes. Well, I have another: If you go to the mall to do some holiday shopping, I guarantee you’ll be offered a discount on your purchases if you apply for the store’s credit card.
I can also promise you the rates and rewards you’ll be offered are far inferior to the more competitive cards you can get elsewhere.
How store credit cards are worse than others
Obviously, store credit cards make money for the store because they finance your purchases at significant interest rates. To encourage the greatest number of customers to make the most purchases, these store cards have fairly low qualifications.
Shoppers will typically qualify with average or even slightly below-average credit scores. So naturally, any card designed for those with mediocre credit will have high interest rates and less competitive terms.
That’s why many stores offer commissions and other incentives to cashiers to encourage shoppers to apply. Once you realize this, you’ll understand why the employees at retail stores are so persistent.
That’s also why the stores offer you discounts on purchases later if you apply now. These discounts, which are sometimes as little as 10 percent off but occasionally go up to 25 percent or more, sound like a great deal. But when you compare your actual savings to the sign-up bonuses commonly offered by other cards, there’s no comparison.
Saving 25 percent on a purchase of $500 adds up to a $125 discount. On the other hand, reward cards like Barclaycard Arrival offers 40,000 miles as a sign-up bonus — worth $444 as statement credits toward any travel expense, which is more than three times as valuable.
When you should consider a store credit card
For all of their faults, I can’t say that store credit cards are completely useless. There are two times when it can make sense consider a store credit card.
The first is when applicants have average or below average credit and are unable to qualify for some of the more competitive offers. In this case, shoppers may find a store credit can be the first rung on a ladder that allows them to (re)build their credit.
The second is when a shopper is making a huge purchase. For example, if you’re remodeling your kitchen, you could easily spend $5,000 on cabinetry and appliances at a hardware store. If that store is offering just 10 percent off when you open a store credit card, then the $500 saved might be well worth applying for it.
In addition, those who know they’ll be frequent customers and large spenders at a particular store — such as those who make many purchases for their business — may find the rewards offered for in-store purchases are superior to what they might receive from their other credit cards. Either way, we’re talking about purchases of thousands of dollars per year, not a one-time holiday shopping spree of a few hundred dollars.
Finally, consider this: The check-out line is the last place you should be making important financial decisions. Shoppers should take the time to research the store’s credit card options at home — before going out to the store.