If you’ve purchased something in a Macy’s, JC Penney’s, Target’s or any one of a number of other stores, you’ve probably been told, “if you apply for one of our credit cards today, I can save you 20%” or some other such figure. This can be very tempting, especially if you’re making a big purchase such as a major appliance, a flat screen TV or a new computer. After all, if you’re buying something that costs, say, $500 then 20% could save you $100 – which is nothing to sneeze at. But are these store cards really a good deal?
Yes or no
The answer to this question can be either yes or no depending on the card and how you use it. As a general rule, these cards have low credit limits and high interest APR’s when compared with standard credit cards from networks such as MasterCard and Visa. In fact, the interest on one of these cards is usually 20% or higher compared with the APR of 15% on a traditional credit card. While that 5% spread may not seem like much, it is money you don’t really have to spend. In fact, if you have a traditional credit card and usually carry a balance the best answer is to tell the cashier, “No thanks”.
They can make sense if …
Store credit cards can make sense if you’re good about paying your balances in full every month. They can save you money when you make that initial purchase and usually come with some kind of rewards. For example, they may require no interest payments for a certain number of months, offer cash back or exclusives such as coupons or special sales. In fact, if you’re a loyal one-stop shopper, one of these cards can actually be a good choice.
The perks you might get with a store card
If you were to get a JC Penney store card, you could get rewards up to 20% off certain items. Of course, you must purchase those items the same day as you get your card approved. On the other hand, Target’s REDcard will lower your purchases by 5% every day and will get you free shipping if you buy through Target.com. Again, as I said before, make sure you do pay those bills on time and in full when you get your statement since these cards come with interest rates as high as 26.99%.
For a really big project
If you’re considering a really big project such as a kitchen makeover or a bathroom update, you might consider a store card from Lowe’s or Home Depot. Both of these retailer’s cards have 0% interest for six months on purchases over $299. And the card from Lowe’s has the option to take 5% off every purchase in place of the 0% interest offer. This could mean a savings of $250 off a $5,000 kitchen makeover.
Standard credit cards
Before you sign up for a store card, you might consider a credit card that comes with cash back rewards instead. For example, the Chase Freedom Visa card has no annual fee, delivers a $100 bonus after you spend $500 in the first three months and 5% cash back for spending on categories of items it changes every three months. If you shop online, this card delivers extra 10% cash back when you buy from select merchants.
One store or many?
How do you choose between a store cards and a standard card? One way to look at it is that a store card ties you to one retailer’s rewards while a standard card generates dollars you can spend anywhere. So, one store or many? It’s your choice.