Why retail store credit cards may have an unwelcome surprise

Retailers will be promoting their store-branded credit cards this holiday shopping season and, in many ways, they offer great benefits. But, in some ways, they are a ticking time bomb.

Signing up for a retail store credit card on the spot often means getting big instant discounts on the purchase you’re making and discounts on future purchases you make at that store. That’s a good deal.

Many also offer “special financing,” such as three to six months with no interest on the balance. That’s also good, as long as you pay that balance off before the introductory period ends. If you don’t do that, it likely it will be costly.

“With a lot of these retail credit cards, if you don’t pay that balance in full during that 0% introductory period, you are going to get hit with a bill for all of the interest that you would have accrued going back to the purchase date,” said Matt Schulz, senior economist at LendingTree.

That could be expensive. According to LendingTree, the average APR on a new retail credit card offer is 24.27%.

Store employees can seem aggressive in suggesting customers sign up for a store card on the spot.

“I think we’ve all been asked if we want to sign up for that store credit card at the counter. Retailers rely on people feeling pressured and rushed into making these decisions. And people make bad decisions when they’re rushed,” Schulz said.

Store credit cards can be good for consumers just getting started with credit, or rebuilding credit when their options are limited. And they are often easier to qualify for than a bank credit card.

A recent LendingTree survey of almost 2,100 consumers found interest in applying for store cards has dropped to its lowest level since 2018, with only 29% of consumers saying they’re likely to apply for one this holiday shopping season, compared to 44% last year.

One in three consumers with a store card say they currently have debt associated with it, down from 49% in 2020. And 42% of consumers have closed a store credit card. According to the survey, “the main reasons for voluntary closures were no longer shopping at the store and high interest rates.”

Visit LendingTree for more results from the store credit card survey.

Jeff Clabaugh

Jeff Clabaugh has spent 20 years covering the Washington region's economy and financial markets for WTOP as part of a partnership with the Washington Business Journal, and officially joined the WTOP newsroom staff in January 2016.

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