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Everything You Should Know About Store Credit Cards

With today’s fast lifestyles credit cards are important for consumers and retailers because carrying cash or using checks are often more time consuming compared to retail electronic payment technology. Consumers have a lot of choices when it comes to credit cards like standard credit cards, premium credit cards and store credit cards.

There are many reasons why you would take out a store credit card. Whether you are just waiting in line at the shop to find out if you can save on that day’s shopping or the store offers you the promise of saving money in future, these cards will regularly find their way into your wallet (or phones via an app). Almost all big retailers offer their own cards which will allow you to take your purchases home with a very nice discount and without having to part with a penny at the cash counter.

These rewards and discounts are often tempting but can applying for a store credit card come back to bite you? Here is what you need to know about the upsides and downsides of using these cards and also the effect they will have on your credit scores.

Upsides of Store Credit Cards

    • Special Perks: The main benefit of store cards is that it offers an initial discount of 10% to 20% when you sign up and you may also get extra discounts the entire year if you shop at that retailer. Many store credit cards offer even more such as rewards programs which may feature other special benefits, such as bonus coupons, free shipping, free gift wrapping or free exclusive financing offers.

 

    • Easier Qualification: Store credit cards are specifically designed to work for individuals with all levels of credit quality. So if you do not want to apply for a secured card or are unable to qualify for a general-purpose credit card then a store credit card can be a good option. It also allows retailers to escalate their customer reach.

 

    • Retailer Discounts: Most retailers promote credit cards as a great way to save money. So, when you sign up for a store credit card you will not only receive an initial 10 -20 percent discount but may also be in line for extra discounts all year long.

 

    • Many stores may also offer you 0% interest on financing offers. They will give you twelve or eighteen months interest-free finance to pay off a major purchase with their credit card.

 

    Store credit card holders are also the first to receive special coupons or gain access to exclusive sales events. Everyone loves saving money, but make sure that you do not overindulge and go on a spending spree.

Downsides of store credit cards.

    • Limited Use: Some retail credit cards may offer the same flexibility as a regular card, but most of them are closed-loop credit cards that are limited to purchases at that particular store or a chain of stores. In addition, these store credit cards may have a low spending limit and can impact your credit score.

 

    • Have a High-interest Rate: The biggest negative is that they always have high-interest rates. So, if you plan to carry a balance or have trouble staying within your budget store credit cards is not a responsible choice. According to a survey by CreditCards.com in 2016 the average APR on America’s retail-branded credit cards had increased to almost 24 percent, which is far higher than the average for all credit cards (15.18%) The high APRs of typical store credit cards mean that you will have to pay hefty interest charges if you do not pay your balance before the end of the grace period and that would completely negate the 10-15 percent discount that you had received on your initial purchase.

 

    • They Encourage Debt: Another negative is the temptation to spend more when you have a retail credit card. Stores frequently offer cardholders’ incentives like discounts, emails about sales and also rewards on your spending. Many retailers will continuously raise the credit limit of your card to increase your spending. You should follow the rules of spending only on what you can afford and keep the balance below 30% of the credit limit. If you are not disciplined with your spending you could easily find yourself in debt.

 

    Potential misunderstanding: Generally when you sign up for a store credit card in-store you are not given a full explanation of all the terms and conditions at the point of sale. Typically you will be given a brochure with the credit card terms and you really may not have enough time to examine the costs of the card and compare it with other credit cards and be sure that you are getting a good deal.

How Store Credit Cards Affect Your Credit

People who are looking to establish or rebuild credit history may find a friend in retail store cards. If your credit score needs some polishing a store credit card can help you build credit. It is a great way to build credit as retail store card issuers normally approve people with lower credit scores. However, co-branded store cards are harder to qualify as people with higher credit scores will get lower interest rates.
When you apply for a new credit product like a store credit card, the issuer will perform a hard inquiry on your credit report. This is generally not harmful to your credit as many consumers will see only a temporary credit score hit of about five points. However, if you apply for several store credit cards at once it could be harmful to your credit rating especially if you have a short credit history or few accounts.
Your credit utilization ratio is one of the key factors that influence your credit scores. Store credit cards usually come with a low credit limit of about $500. So by using store credit cards, you can reach a credit utilization ratio of 30% with a purchase of just $150 dollars.
However, if you use your store credit card sparingly, keep a low balance and pay off your bills immediately, the available credit on your store card can drive down your utilization rate and increase your overall credit.
You can establish a credit history by using and paying off the bills on time and also reduce your debt-to-credit limit ratio by using it sparingly and keeping statement balances low. This makes up 30 percent of your credit score. It will also establish a pattern of good habits which in turn will boost your score.

Bottom Line

You can benefit from store credit cards if you are responsible and pay your balances each month. Still, you should take time to understand the advantages and drawbacks of store credit cards. You should also check out the other credit cards in the market to find out one with better rewards and lower interest rates.

Don’t Fall into Deferred Interest Credit Cards over the Holidays or You’ll Pay 27% More Interest.

 

America is a paradise for shoppers with a multitude of retail stores that offer foods, electronics, clothing and much more. The savvy shoppers often make a sport of looking for the best prices through sales, discounts offers, perks, interest-free deals and much more. 

Many shoppers may prefer to use store cards instead of their everyday Visa card for shopping as many stores have their own cards and offer better deals. The holiday season is fast approaching and retail credit cards can really save some money. It can also help counteract the ballooning effect that holiday gifts can have on their spending.

Are store credit cards a good deal?

When checking out at a retail store we often come across stores offering 12 months or more free financing, if you apply for their credit card that very day. Chances are that you will be hearing this a lot more often if you accelerate your holiday shopping.

 No doubt these financing offers are very tempting for holiday shoppers-and many take the bait-but are stores credit cards really a good deal? The answer is yes if it is used smartly.  But, before agreeing to apply for the store credit card there is one hidden trick you must be aware of otherwise your “free financing” can backfire in a very big way.  One common miss-step will end up in you paying 25% to 28% more interest on purchases you make.

According to WalletHub, “the trouble arises due to deferred interest”

The difference between 0% Intro APR Cards and deferred interest cards

If you want to make a large purchase with a store credit like a home appliance you may qualify for special financing. Store Credit cards that offer free financing are 0% Intro APR cards and deferred interest cards.

You might reasonably assume that they work the same way, but they are different. You get 0% APR which will allow you to pay back the purchase money with no interest for a specified period such as 12 or 18 months. With Introductory 0% APR you will not be charged interest during the promotional period and interest will start to accrue only on the remaining balance. But on the other hand, differed interest cards are particularly dangerous.  You will be charged interest not on the balance amount as in a 0% APR but interest will be charged on your entire purchase amount.

The Trouble with Deferred Interest  Credit Cards

This is a feature which is commonly found in the fine print of 0% store financing offer plans and particularly dangerous. It is like a wolf in sheep’s clothing as it pairs an enticing offer like “no interest if paid in full” or “special financing” with a clause that can turn sour. Many retailers do not disclose deferred interest clearly enough.  If you make even the slightest mistake of not paying back the entire amount by the end of the interest-free period it can lead to some expensive post-holiday shopping surprises.

With a deferred interest, finance offers you must pay off the entire amount in full before the promotional free financing period is over. If you do not do so then you will have to pay the full amount of interest charges as if the interest rate was effective the whole time. The moment the promotional period is over the “deferred” interest rates comes rolling back, not just the balance amount you owe but on the entire purchase amount.

Let us look at an example as to how much a deferred interest card can cost.

If you had 12 months to pay off a purchase of $1,500 and you had paid $540(minimum payment of $45 dollars per month) at the end of the financing period. The store will then charge you 12 months of interest on the balance which will be a walloping $321 in interest. In addition, you will still owe the $960 balance on your purchase. Whew!

This is by far the biggest negative that is associated with credit cards. The interest rates of biggest retail-branded credit cards are often sky-high, with a standard 24.99% to 27.99% APR. In comparison “the current average interest rate for all credit cards is 13.08% APR”, according to the Federal Reserve.

So before using a “deferred interest” store card you should plan to pay off the loan before the promotional period expires, as sometimes “unexpected things occur and you may not be able to make the payment every month”, says Bowne.

Avoiding getting surprised by the deferred interest

This is how you can take advantage of zero percent finance offers by considering the following precautions:

  • You should make sure you read the terms and conditions carefully to see if the card carries an annual fee, You should also know what the go-to APR will be once deferred-interest promotion period expires.
  • You can plan to have it paid off early by dividing the purchase price by 11 months instead of 12 months.
  • Pay your balances each month by setting up the payment on auto pay. In this way, you can boost your chances of paying it off in time.
  • You should avoid any extra trips to the store to avail of offers on “card member” sales and only purchase what you want.  

No doubt store credit cards offer you much better deals and discounts then typical cash back cards.  You can save loads of money if you are a frequent shopper. But just remember not to leave a balance because “deferred interest” will always destroy any savings and rewards the cards have offered. 

For more updates  call us at  our toll-free number(800) 400-ZINU(9468)