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Have you ever made a split-second decision to apply for a retail store credit card to score a discount while checking out? Did you really take the time to think through if the card is the best option for your shopping preferences and lifestyle?
With the holiday shopping season ramping up, shoppers will be looking everywhere for the best deals, discounts, and offers. Some retailers offer their own co-branded store credit cards, which can save you money as you shop. For example, stores like Target, Walmart, Best Buy, Macy’s, and Costco offer some of the most popular retail store credit cards on the market today.
A new Credit Card Insider survey of 3,771 retail store cardholders revealed interesting holiday shopping, debt, and retail credit card trends. A few big takeaways include:
These trends show that despite the relative popularity of retail store credit cards, they may not be the best option for shoppers. Over four out of five retail store cardholders surveyed said they applied for a card in-store. With the discounts, sales, and signup bonuses cited as reasons from survey takers, these incentives may look appealing in the short term.
However, if you can’t pay off your balance monthly, these store cards often charge interest at some of the highest APRs in the industry, canceling out any rewards value you earned quite quickly. There are benefits to store credit cards, but not if you plan to carry a balance month to month.
Retail store credit cards have high APRs, often just shy of 30%. At those rates, it can be very difficult to dig your way out of debt without a solid debt pay-off strategy, especially if you’re only making minimum payments each month.
84% of retail store cardholders that were surveyed said they applied for a store credit card in-store, while 52% have applied for a store card online.
Often, retail store employees are required to push these credit cards on customers. Customers in line may have less time to think about these decisions, and be pressured into saving some money short-term without considering the longer-term strategy of having these cards.
Retail store credit cards typically offer incentives that include discounts, rewards, sales, coupons, bonuses, gifts, or special financing offers. When survey respondents were asked to choose all the reasons they applied for their store cards, the top reasons were:
“Special financing or 0% APR to pay off a purchase over time,” was a reason 32% of respondents chose, which could be worrisome. Many store cards have “0%” offers that are less favorable than the way most credit cards with a 0% introductory APR period work, but we’ll talk about that more when we look at deferred interest.
A positive note is that 23% of respondents said one reason they applied for a retail store credit card was to build or improve credit history. Reassuringly, on another question, 9 out of 10 people surveyed understood that retail store credit cards affect your credit scores.
Retail store credit cards have their advantages, but their APRs, which are often in the 25%–30% range, make them dangerous tools, especially for irresponsible credit card users.
One of the most striking findings from the survey was the fact that 55% of respondents said they’ve paid interest charges for carrying a balance on a store credit card, with a further 8% answering that they don’t know if they have!
When looking into the data even further, women were more likely than men to have paid interest charges. 59% of women surveyed answered that they’ve paid interest on credit cards compared to 48% of men surveyed. A further 7% of men and 8% of women surveyed answered, “I don’t know.”
“Special financing offers” from retail stores are particularly dangerous because they’re often designed to allow for deferred interest. One popular example is Best Buy’s card. With most non-store-specific cards that have 0% introductory APR offers, a cardholder can pay off large expenses over time without paying interest during the introductory period. Then, interest starts accumulating on the remaining balance after the introductory period ends.
With deferred interest offers, if you pay late, or have any remaining balance at the end of the “no interest” period, even just a dollar, you’ll be charged interest for the entire period on the initial balance you started with at the regular APR! This could mean fees of over $800 on a $2000 purchase, for example.
32% of surveyed respondents said they don’t know what deferred interest is. When this question was segmented by age, the worst result was for respondents aged 18–29, of whom only 50% said they know what this type of interest is.
When asked whether or not they regret applying for any retail store cards, 40% of respondents said that they did.
If you frequently find yourself buying from a brand that offers a store card, like Amazon, you may be able to benefit from consistent discounts, or exclusive sales and coupons can save you money — but only if you use the card responsibly.
If you’re applying for a one-time discount, statement credit, or signup bonus, make sure that the other features fit into your spending and shopping habits so you’ll get more out of the card. If you’re going to use a special financing offer, be sure that you can pay off your balance in full and on time.
Credit Card Insider commissioned SurveyMonkey to conduct this online survey of 3,771 adults over the age of 18. All fieldwork was completed from September 6–7, 2019. This survey employed a non-probability-based sample during collection to provide nationally representative results.
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