Store Credit Cards - Holiday Shopping Pitfalls
What better time than the biggest shopping season of the year to talk about store credit cards and why there is more to them than meets the eye. Yeah, I said it. Store cards, while attractive on the surface, can have a devastating impact on your finances. How? Let’s discuss.
First, let’s talk about the elephant in the room. Obviously, savvy shoppers will be scouring retailers for ways to save money, so when the cashier offers a 20% discount “just” for opening their store credit card, it’s an offer that would be silly to pass up, right? Wrong.
That card will result in an inquiry on your credit report, and while one hit usually doesn’t hurt, if you’ve had multiple inquiries in a short period of time, that *will* hurt. Not to mention, newer inquiries bring down the average age of credit - another factor used to determine one’s credit score.
Since we’re on the topic of credit, retail cards are often offered at much higher rates than “normal” cards. While bank cards usually clock in around 21% - 24%, retail cards can tip the scales at 25%, 28%, 35%, or even 36%. If you are not paying your balance off in full each month - and let’s face it, most of us can’t afford to do that - you end up paying up to an extra 16% more for that 20% discount the store offered you.
If the 75% of shoppers intend to follow through on their plan to use a credit card for their holiday shopping, that’s a lot of potential damage done. So…how can it be avoided? Do you have to use cash for all of your shopping? No, not necessarily.
I work for a credit union, so I might be biased, but employer aside, a credit union credit card is going to be a better alternative than a store card, or another credit card 100% of the time. Credit unions are legally obligated to cap their interest rates at 18% - that’s some huge savings there. But that’s just the tip of the iceberg.
Credit union cards, particularly ours, often feature rewards programs that are hard to beat. If you use our Visa Rewards Credit Card for your holiday shopping, you are going to earn Rewards Points on every single purchase – which can be redeemed for many, many different items, merchandise, gift cards, but most importantly, cold, hard cash. So, for those of you keeping track, that is savings on the rate and savings when you redeem points for cash. But let’s dig even deeper. That 18% cap I mentioned above is the maximum we can charge, which means most of our cardholders are paying much less than that – as low as 10.90%. Suddenly, that 36% store card looks so. much. worse. Right?
If you needed one more reason to use our card over those store cards (or other bank and credit union cards), how about the fact that our rate isn’t variable? What does that mean?
We are all aware that interest rates fluctuate in response to the economy. So, in high-rate environments, like we have been seeing recently, you won’t be paying those sky-high rates, and even when rates drop a bit, they almost certainly won’t be dropping enough to meet or beat our card. The bottom line is if you need to use a credit card for your holiday shopping, you can’t beat our low, fixed-rate card. Let us prove it to you.
Not a cardholder? You might have missed out on our annual Quadruple points special, but we offer points promotions just about every single month, so you will never miss out again. Click here to Apply Now.
I want to hear from you. Leave a comment below. You can also email me directly!
Krista Kyte is a personal finance blogger and personal banker with over 22 years of experience in the financial industry. Krista is passionate about helping our members understand their financial situations. She writes tips that help consumers reach and maintain financial security and start living the life they've always wanted.
