An estimated 94 million Americans have impulsively signed up for a retail credit card at the checkout and many of them have likely regretted that decision, according to a new CreditCards.com study.
These credit cards may offer sign-up incentives like 15% off your first purchase, but they’re more risk than reward.
Retail credit card warning: Table of contents
- Store-only vs. co-branded retail cards
- Retail cards with the highest interest rates
- Deferred interest: How it can cost you money!
- Use these credit cards instead of store-only cards
Retail credit cards: Store-only vs. co-branded
When we’re talking about retail credit cards, there are store-only cards and co-branded cards. Money expert Clark Howard wants you to avoid the one-store-only cards.
Store-only cards are only accepted at the retailer in question and aren’t affiliated with a card network.
On the other hand, co-branded credit cards have the retailer’s name on them but can be used elsewhere. They’ll have either a Visa, Mastercard, American Express or Discover logo.
If the credit card doesn’t have a logo from one of the major card networks, you know that it’s a store-only card.
How store-only credit cards can cost you money!
Clark has two main problems with one-store-only credit cards: high interest rates and deferred interest, which he refers to as “hideous retroactive interest.”
Let’s tackle both of those topics using data from the new CreditCards.com study…
1. High interest rates
CreditCards.com looked at 81 cards from 58 retailers and found the average retail credit card APR (annual percentage rate) is 25.64%, while the average APR is even higher for store-only cards: 27.23%
The six highest APRs are all charged by store-only cards and they’re all around 30%:
Retail cards with the highest interest rates
|CreditCards.com, November 2018|
2. Deferred interest
Many store-only cards have a deferred interest period, including 36 of the cards in CreditCards.com’s study. However, this type of financing doesn’t work like a typical credit card’s 0% APR offer.
One-store-only cards may charge retroactive interest if you don’t pay in full before the 0% financing is up.
For example, if you make a $1,000 purchase at 25% deferred interest for 12 months, you will owe $250 in interest if you don’t pay off the entire balance during that promotional period.
It doesn’t matter if you only owe a few dollars after the special financing ends, you still have to pay all of that interest.
Meanwhile, if you took advantage of a 0% APR offer from a general-purpose credit card, only the balance left after the promo period expires would be charged interest.
Use general-purpose credit cards instead
Here’s the bottom line: If there’s the slightest chance that you’ll carry a balance, Clark says you’re better off rejecting store-only credit card offers — even if the sales pitch at the register sounds amazing!
Instead, he likes Citi Double Cash. It offers 1% cash back on purchases, then another 1% when you pay it off.
Clark’s take: Store-only credit cards