Do you think that store credit cards are a good or bad idea? It is actually hard to say. There are pros and cons to using this type of card to make your purchases worthwhile. But what exactly are these cards?
These are also called limited purpose cards because it is store specific. You can only use it in the store where you got it from. It is not like the traditional credit cards that you can use anywhere. Most of the big retail stores, department stores and grocery establishments offer this to their clients. Naturally, you can use it in various branches (e.g. all Target stores, etc). In some cases, you can use a store card even in the sister retail establishments of that particular store – as long as it is under the same company.
It is usually offered by the cashier when the client is already in the check out line. It usually comes with a discount that can be immediately availed – this is why a lot of clients are enticed to get it.
Taking a look at merchant credit card trends
While it may seem like a harmless credit card, people are starting to get scared of using these credit cards in any store. With the Target data breach and the other companies that are in danger of being hacked, people are cautious of using them. The Consumerist.com revealed a statement from the FBI that the POS malware crime that happened to Target and other establishments can happen again. This is despite the efforts being done to catch the culprits and protect the systems of the retail stores.
But despite the danger, the store credit card trend is still steadily rising as people continue to use and patronize them. You will think that people will give up these store credit cards but that will not happen – at least not in the near future.
According to an infographic from CreditKarma.com, 21% of American have opened at least one store credit card in the past few years. Of that statistic, 45% of them admitted to not considering the credit implications of opening store credit cards.
It is also interesting to note that the application for these retail cards usually spike during November and December. While the rest of the months play around 6%-8%, November increases to 13% and December at 11%. Obviously, this is because of the holiday spending. The only time it increases again is during August – the back to school spending.
While it is obvious that store credit cards will still be utilized by consumers, the question remains as to whether you should avail of it for yourself or not.
5 reasons why getting retail credit cards will benefit you
If you are thinking about buying these cards, you need to know the pros and cons first. More than teaching you tips when using store credit cards, we want you to focus on why you have to get it in the first place.
Here are 5 reasons why you will benefit from buying these merchant cards.
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High discount for the initial purchase. Most retail cards are offered with a starting discount that can be used immediately. Usually, the discount is quite high and it is only applicable during the first purchase. The average discount is between 10% to 20%. If you are the client, it will really be a good deal for you. In some cases, the discount may even go as high as 30% – but it usually has a price limit.
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Regular discounts. Apart from the high discount at the first purchase, the consumer can also avail of the regular discounts. Even if it is only small, if you regularly shop on those stores, that will really serve you well. A small saving can add up to be a big amount if you get it all the time. The usual discount is 5%. For others, the discount is higher but only on certain days.
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Rewards programs. Of course, the store credit cards offer rewards. This can be points that can accumulate over time and can be converted to cash. If you are a frequent shopper, this can really help you over time. It can be cash back rewards that range from 1% to 10%.
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Free items. Apart from the rewards, the store cards will also prove to be beneficial because of the free items that you can receive. It can be in the form of free samples or products. It can also be free services like shipping, wrapping, alteration, etc.
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Zero interest for long term financing. Most of these store credit cards can be paid in installments at zero interest. This is not possible for every purchase of course. It is usually for expensive and big purchases only. The time frame of these zero interest are usually over the course of 48 months. This is a great way for clients to purchase expensive items immediately and pay for it in installment without worrying about interest rates. Of course, you have to make sure that you can pay it off within the zero interest period. After that period, the high interest rate will kick in.
Despite these benefits, you still have to consider your options carefully. According to TheSimpleDollar.com, if you know that you have good financial management skills, you can be trusted with these store credit cards. As long as you know how to pay it off immediately and to regulate what you buy, you should be safe from debt. Not only that, you have to choose the cards that you will avail. If you are a regular patron of a store, then you can maximize the rewards of the cards.
5 reasons why store cards can destroy your finances
If there are reasons to get these cards, there are also reasons not to get them. To help you make a wise choice we will also present you with 5 reason why you may want to skip these cards.
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High interest rates. Like all credit accounts, you have to check the interest rates of store credit cards. These are known to accrue high rates with an average 24%. In comparison, the regular credit cards have a lower average rate of 15%.
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Restricted use. As mentioned, this is a limited purpose card. That means you will not have the flexibility of using it all the time and wherever you go. So unless you shop in the store all the time, the card will be relatively useless to you.
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Limited benefits and rewards. Since the use is limited, you can expect that the benefits will be too. And not only that, it will be restricted only to what the store can offer. There may be instances when the store will partner with other establishments but this will not be a regular event.
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Multiple cards can lower credit scores. Since we all know that credit scores really matter, this should be a cause for concern. If you can keep your cards to a minimum and only where you shop the most, you might be able to keep your score from going down. Not only that, you have to display a good payment behavior to maintain a high credit score.
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Impulse application. Since these credit cards are offered at the check out counter, you will be pressured not to read the fine prints – for fear of angry clients lining behind you. It is usually a bad idea to not read these fine prints before availing of the card. You might be signing up to more than what you intended.
In the end, you know that it is only a good idea to avail of a store credit card if you know that you can use it properly. If you are only getting it to avail of the discount, it is usually not the smartest move that you will make.