What you need to know about store credit cards

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What you need to know about store credit cards
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There’s one hidden danger you need to be aware of as you look for savings with store cards.

What to know about store credit cards

When you go to check out at most of the big retail stores, you’re probably asked if you want to use your store credit card. If you say you don’t have one, the store employee will probably give you a speech about why you need one and how much money it can save you.

But the reality is, store cards can end up costing you a lot more in the long run if you can’t pay your balance off in full every month. So while a discount on a big purchase may sound great, if you can’t pay it off quickly, then it’ll end up costing you more.

According to a report from CreditCards.com, the average store credit card carries a 23% interest rate — compared with an average interest rate of 15% for all credit cards. Some store cards carry rates as high as 29%.

‘If you’re someone who carries a balance, retail cards aren’t for you,’ said Matt Schulz, senior analyst at CreditCards.com. ‘Even with the rewards and discounts, the math just doesn’t work.’

However, experts also say that if you don’t have an extensive credit history, making small purchases on a store card — that you pay off in full every month — can help you build credit.

Read more: How to find the best credit card for you

”Even though the interest rates might be high, start small and be careful,’ said April Lewis-Parks, director of education with Consolidated Credit Counseling Services, a Fort Lauderdale, Florida, credit counseling service. ‘Buy something one month and pay it off. After holding the card for six months, your score should improve and you may be able to access more general purpose cards.’

But this only applies to people with minimal to no credit history — and only if you make small purchases that you can pay off each month. The general rule of thumb with store cards is that they can be very dangerous for your wallet!

One exception: There is one store card that Clark makes an exception for. The Target RED card gives you 5% off every day on pretty much everything. This can make a lot of sense if you shop a lot at Target. Just make sure you pay the balance off in full each month.

How store cards can hurt your credit

One word of warning: Don’t open multiple 0% cards in a short period of time. Doing so can really hurt your credit.

Also, don’t open any store cards if you plan to qualify for a car loan in the next three months or home loan in the next six months. 

Don’t forget about your other credit card rewards

The credit card that’s already in your wallet may have great rewards that you can take advantage of while holiday shopping. Make sure to check with your specific card’s rewards program. And if you’re in the market for a credit card with rewards, here are some tips.

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Alex Thomas Sadler About the author: Alex Thomas Sadler
Alex Thomas Sadler is the Managing Editor of Clark.com and Clark Howard Digital Products. Alex is also the host of Common Cents, a new Clark.com series that makes money simple, so you can better understand and take control of your own financial life. Alex graduated from the University of Georgia with bachelor's degrees in ...Read more
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