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The stores are trying to make money off you - but you may be able to flip the script.

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At most department stores, you can’t buy anything without being asked if you’d like to apply for the store’s credit card. To persuade you, the salesperson will offer you significant savings on your purchases that day.

Store credit cards make money for the store by financing 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.

Usually, if it seems too good to be true, it is. Here’s when store credit cards are worth it, and when they aren’t.

What is a store credit card?

Store credit cards are often low-balance cards you can only use at the store you open the line of credit through [1]. If you’re new to credit, or trying to rebuild your credit, these cards can help you — as long as you pay the balance every month. However, there are some drawbacks.

Retail store credit cards are known for having high interest rates. The average annual percentage rate on credit cards from some of the largest retailers in America is almost 25 percent, according to a 2017 survey from CreditCards.com [2]. That’s an expensive debt to carry around.

Of course not everything about these credit cards is terrible. They do offer some extra perks to keeping this type of credit line open. Some retailers will offer special incentives or rewards deals.

Why you shouldn’t apply for a store credit card

You shouldn’t apply for a store credit card when you don’t understand the confusing terms and conditions. Also, expect to pay more than you should if you don’t pay off your balance in time —  the stores actually bank on you falling into this trap.

The store is making the credit card offer because it will benefit them financially in a number of ways. The store hopes to make money from you financing purchases, but also hopes you’ll come back to spend more and more using the easy credit. And let’s not forget the high-interest rates.

The stores will 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 any discount offered to you at the moment of application and purchase is calculated to be far offset by increased revenue for the company from you using the card.

The store makes higher profits by getting the card into your hand. This means the discount will cost people more in the long run.

Store-branded credit cards have enticing offers, which can leave shoppers to buy things they might not want or need just to get another deal. Oftentimes, it isn’t worth it. More than 41 percent of people with store credit cards say they have spent more money on their cards just to earn a reward offered by the store, according to a LendEDU study [3]. More than one-quarter of respondents note that they have been hit with unexpected fees on their cards.

But if you’re smart about your purchases, you may be able to make the store card work for you.

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When you should consider a store credit card

For all of their faults, store credit cards aren’t completely useless. There are two times when it can make sense to apply for 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 that store credit can be the first rung on a ladder that allows them to rebuild 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 worth applying for.

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.

You should only apply for the cards if you understand the terms, and have the cash to pay off your balance in full. If you do this, you can take advantage of the discounts instead of the discounts taking advantage of you.

What to do when you’re asked to apply

The checkout 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.

Credit card offers are complicated documents written by very smart lawyers to protect the company at every turn. Every time someone says they didn’t know the creditor could do this or that to them, it’s right there in the agreement.

Credit card agreements are very clear about all the bad things that can happen to you with the card. Creditors lay it all right out there but people never stop to read the terms when the offer is pitched.

So how can people make an informed decision if the store card being pitched to them is a smart financial move? The simple answer is they can’t when standing at the register. It’s impossible without weighing the risks by reading the terms and conditions. By its very nature, the offer and acceptance of the store card offer puts you at a distinct disadvantage.

But there are other ways to get store perks and discounts rather than signing up for the store credit card. So before you jump at the offer, it’s a smart idea to get out of line and think twice.

Where do Americans use store credit cards the most?

If you live in McAllen, Texas, odds are you have a credit card from a retail store. At least that’s what a study from Lending Tree says [4].

McAllen is just the city with most residents using these types of cards, and carry a balance on those cards. In the top 10 cities using retail store credit cards, Texas has three of its cities make the list. The other two — El Paso, and Houston, Texas tied for 10th place. Here are the cities that earned their spot in the top 5…

  • McAllen, Texas: The average balance on retail store credit cards is $3,207. That’s actually not the highest average balance. But when considering how many people have these cards here, and the percentage of card balances they have brought this city to the top of the list. Seventy-two percent of McAllen residents have retail cards. And 45 percent carry a balance on those cards.
  • Charleston, South Carolina: The average balance on a retail store charge card here is $4,026. Sixty-three percent of this city’s residents have charge cards. And 33 percent carry a balance on these cards.
  • Bakersfield, California: The balance that most retail store creditors hold here is $3,053. Sixty-eight percent have a balance on their charge card in this city. And 37 percent carry a balance on their card.
  • Riverside, California: Another city located in California with a high amount of retail store cardholders. These shoppers hold an average balance of $3,115. Sixty-six percent of the population has one of these cards, and 36 percent carry a balance on them.
  • Lakeland-Winter Haven, Florida: Coming in at No. 5, and the only Florida city to make the top 10. Retail store card holders carry a balance of $3,628. Sixty percent of city residents have one, and 34 percent carry a balance on their charge cards.

If you’ve already gotten yourself into debt with a store credit card, visit Debt.com’s in-depth guide How to Pay Off Credit Card Debt.

Cameren Boatner contributed to this report.

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Meet the Author

Steve Rhode

Steve Rhode

Expert contributor

Rhode has been writing since founding a nonprofit in 1994 to help people get out of debt.

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