Store credit cards can seem like a good deal at first. They often offer new applicants a coupon and tend to come up with attractive, interest-free finance offers.
However, store credit cards are usually not the great financial tools they are meant to be. They have major flaws that could make it smart to ditch your store credit card and use a traditional card for your next purchase.
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Three big flaws
Store credit cards can be decent options if you want to take advantage of an interest-free finance offer, or if a store credit card offers a high reward rate and you’re going to pay for your purchases right away. But there are some major drawbacks to storing credit cards that you should be aware of.
- High interest rates: The average credit card interest rate (excluding 0% introductory APRs) is 15.8%. But many store credit cards have interest rates that are a lot upper. It’s not uncommon for a store credit card to have an APR of close to 30%. If you plan to carry a scale, it makes a big difference.
- Lack of benefits and rewards: Many store credit cards have reward rates that are not competitive with the best reward credit cards. Some do not offer any rewards or benefits.
- Deferred interest financing: A lot of people don’t know that when you sign up for a traditional credit card with a 0% introductory APR offer – say, 0% introductory APR for the first 12 billing cycles – it’s really worthless. . If you do not pay your balance in full by the end of the 0% APR introductory period, interest will only start to accumulate at that time. On the other hand, promotional store credit card financing arrangements are generally structured as deferred interest. This means that if you don’t pay for your purchases in full before the promotional period expires, not only will interest start to accrue, but any interest that you would have been charged from day one will be added. college that funded a TV with 24-month deferred interest funding, made the minimum payments and was shocked to see almost $ 500 of deferred interest added to its 25th billing statement.
When you should use a credit card in store
To be fair, there are some situations where a store credit card makes sense. For example, although they are normally structured as deferred interest, store credit cards sometimes give you more time than traditional credit cards before the interest starts. In the interest of full disclosure, I recently used a store credit card at a major electronics retailer to purchase a new TV because I have a 24 month interest free period. Of course, the interest is technically deferred, but I plan to pay off the balance well before the two-year period expires. I’ve seen some store credit cards (especially furniture stores) offer interest-free financing for five years.
In addition, there are some store credit cards that offer competitive rewards and other benefits. If so, it may be worth using, but if and only if you are certain to pay it back before interest starts accruing.
So while there are some instances where using a store credit card may make sense, it’s important to be aware of the downsides before signing up.