Retail Store Credit Cards Aren’t Doing You Any Favors

February 5, 2019|Posted in: Uncategorized

Argh! What was I thinking? The last thing I need is another credit card: I know that, you know that, anyone whose ever met me knows that. Credit cards = debt, and I do not need more temptation to go into debt. And I KNOW BETTER…I know it’s a trap. Which makes me feel like a complete MORON.

You know how it goes: you’re in some big box department store, there at the register with your purchase, starting to checkout, and what’s the first thing they say? “Will this be on your Big Box Department Store credit card?”

You say no. They ask if you HAVE said card (usually with a feigned sense of incredulity). You, again, say no.

But you’re in luck! These cash-register jockeys are here to put you back on the path to enlightenment! With all the subtlety of an octogenarian holding out a peanut to a chipmunk, they set you up: “Would you like to sign up for one now? It will only take a moment and…” Ready for the big pitch? “… YOU’LL SAVE 15% ON TODAY’S PURCHASE!”

I’m all about saving money, but nothing comes for free: there ARE consequences for filling out that little form. Retail credit cards differ from standard cards.

Another Look

While the perks–and the interest rates–vary from card to card, pushing a retail credit card is standard practice at many department, big box and outlet stores. Some stores–Kohl’s, I’m looking at you–incentivize the whole thing for their employees, seemingly turning it into a cut-throat competition between cashiers to collect the most applications.

So the pressure is on. Customers are incentivized, as well, since signing up typically gives you some type of instant bonus or discount that can be applied to the purchase you’re making. Easy money, right? Well…maybe not.

Think Twice

Any retail credit card is going to be tied to that specific store. Some offer additional perks, like special sales and exclusive coupons. But since the card only works at that store, the benefits and rewards are usually tied to that store, as well. That’s a bit of a carrot to keep you shopping there…and potentially paying more than necessary for an item because, what the heck, you’re already there.

I’m not saying I’VE ever done this; I’m just sayin’ I’m sayin’.

A lot of store credit cards can bang your credit score, too, depending how you use them. Because they need the process to be fast, they’re probably not going to do a hard inquiry on your credit background. That’s good, actually–having too many hard pulls starts looking suspicious. At the same time, it also means you’ll probably have a lower credit limit than other types of cards.

How does that hurt your credit score? Well, an ideal credit utilization percentage–that is, the ratio of how much of the available credit you’re using–is 30% or less; anything higher negatively impacts your credit score. So the lower the amount of available credit, the easier it is to go over the ideal threshold. Spend $200 on a card with a $15,000 limit (yes, I have one), and it won’t make a dent. Spend the same amount on a card with a $500 limit, and you’re automatically at a 40% ratio.

But here’s the real deal-killer: store credit cards almost always offer the highest interest rates. In other words, unless you pay off the full amount every single month (I try to, I really do), you’re wiping out any discount you get when signing up. It’s a sucker bet.

Are They All Bad?

So are retail store credit cards completely useless. Meh. Probably not. They’re easy-to-get credit if you don’t qualify for one of the big guns, and can help build your credit score, if you’re smart about using them. And getting a card from any store where you are already spending money on a regular basis might work out OK.

But again, it’s all about being smart. Stores aren’t doing you some big favor: from the initial pitch onward, everything about you having a retail store credit card benefits the store more than anyone. Which makes one wonder why people who KNOW BETTER still get sucked into signing up like a complete MORON.

Like how I came full-circle on that?