If you have gone shopping at department stores, then you must have noticed that you’ll rarely miss this question at the checkout, “Would you like to have our store credit card?”
The offer is usually followed by an enticing discount of some percentage between 10%-20% of your purchases on that day. Before you even make a decision, you will be overwhelmed by the lots of promises they give; discounts, cardholder-only rewards, and special offers after that.
Sounds great, right? But what are the consequences of signing up for the department store credit cards?
Let’s look at what to expect.
What Are The Benefits of Department Store Credit Cards?
You might be wondering whether you should get a department store card, is there something to gain from using them? Well, while these credit cards have their fair share of drawbacks, they come with benefits. If you are a responsible person who is punctual in paying bills, here are some of the top reasons why you should try a store credit card.
1. Credit Building
If you lack a substantial credit history, then store credit cards is the best place to start. Why? They have considerably lower barriers, unlike other institutions. This provides you a chance to establish a credit history that you can use to prove your ability to creditors.
2. Credit Length
Another factor that determines your credit score is how often you have used the account. If you are a frequent user, then ensuring that it is active all the time will enhance the look of your credit report.
3. Special Perks
Responsible users of store credit cards usually enjoy many perks such as rewards offered only to cardholders and discounts. So, if you have a good spending habit and pay your bills on time, then you can benefit from store credit cards.
4. Easier Qualification
If you are not ready to apply for a secured card or you don’t meet the requirements that general-purpose credit cards demand, a store credit card is a great alternative. This is because it has fewer barriers to entry which means that you can quickly get started.
Disadvantages of Using Department Store Credit Cards
Before accepting to sign up for the store credit card, there are certain factors to keep in mind since they will impact your credit in a significant way. Here are the top 4 key figures to consider:
1. High-Interest Rates
Something that you will not be told when signing up for the retail credit card is that their interest rates are quite high. For instance, a credit profile could attract a 6% interest rate when using a non-store card, but when using a store card with the same credit profile, the interest rate could be as high as 20%. Although you might get a discount when signing up, it’s a one-time thing.
2. Little or No Grace Period
If you are used to clearing your credit balances upon completion of a billing cycle, then you might be deceived to think that the interest rate doesn’t matter. It’s a good habit, but department stores operate differently. Some of them will begin charging you immediately such that by the time you get your first bill, the balances will have attracted accumulating interest.
3. Low Minimum Payment Amounts
While low minimum payment sounds appealing, the underlying fact is that it could take you long to clear your balances. For instance, how long will it take you to clear balance of purchase worth $300 by paying between 3% to 5% of the total amount? Long period, right? Instead, you will end up paying more through finance charges for a $60% discount!
4. Low Credit Limits
Another factor is that most of the department store credit cards come with a lower spending limit as compared to standard credit cards. Although that might sound appealing since it will prevent your credits from going out of hand, your total available credit is determined by all your open spending limits. For instance, if your credit card limit is $500 and you purchase a card worth $300, according to the number of accounts that you have, you might have surpassed the 30% utilization rate used by creditors in determining your creditworthiness.
Top 4 Best Department Store Credit Cards
Department store credit cards are one of the best ways of saving money through making purchases in your favorite stores. Most of them offer a generous first purchase discount alongside lucrative rewards with no annual fee charges.
Here are some of the cards which are easy to apply from reputable stores:
1. Target REDcard™
Target REDcard™ is one of the traditional stores to add on your list if you need a rewarding store credit card. They offer a 5% discount both online and in Target purchases except for eye exams, gift cards and items bought from their pharmacy. You will also enjoy other exclusive cardholder benefits such as free shipping plus a 60 – day return policy, unlike the standard 30-day.
2. Costco Anywhere Visa
This is also another great credit card that offers you several means of earning from different categories. You will get 4% cashback for all gasoline purchases with a limit of $7,000 annually. Another 3% cash back is given for all eligible travel and restaurant purchases. If you make all your purchases at Costco.com and Costco, then you will enjoy the 2% cash back. For all other purchases, you will be awarded a 1% cash back discount.
3. Walmart® Store Card
The Walmart® credit card is suitable for users with low credit scores who can’t access better rewards credit cards from other stores. They give savings on gas purchases and 0% financing options. When using the Walmart® MasterCard®, you will also be rewarded with a 1% savings for all purchases you make regardless of where you bought them.
4. Amazon Store Card
Amazon Store Card is another credit card with exciting rewards. Upon signing up, you will get a $10 Signup gift certificate once your application is approved. Prime members also receive a 5% cash back on every Amazon purchases saving a lot of money especially when you are a shopaholic. With no annual fees, you get to enjoy free membership using the card.
It is important to understand the terms and conditions before signing up for a department store credit cards. Always, pay close attention to the ARP, and ensure that you are comfortable with their interest rates.
Additionally, keep in mind that a store card is just like any credit card. This means that you will soon be getting into debt through signing up for one. While it has its benefits, if you don’t wish to incur debts then you have no reason to get one.