Shopping with a credit card is a smart way to rack up rewards on just about everything you buy, but not all cards are created equally. Retail credit cards, for example, offer discounts and other incentives to shoppers who favor a particular store. But using one doesn’t always guarantee you’ll get the best deal.
Find the right credit card for you.
Sales clerks routinely ask customers at checkout if they want to save by opening a store card but there are a few things to keep in mind before signing on the dotted line.
What’s the APR?
Retail credit cards tend to carry much higher interest rates compared to other types of credit. Typically, you can expect a store card to have an APR of 20% or more. So you need to know up front how much you’ll be charged if you carry a balance. If you’re not able to pay the card off in full each month, the amount you’ll pay in interest may outweigh whatever initial savings you got by signing up.
You’ll also want to find out when the introductory period ends and what your regular interest rate will be if you’re signing up for a retail credit card with a promotional APR. Under the 2009 CARD Act, promotional periods have to last for at least six months so you’ll need to make sure you can pay the balance off before the higher APR kicks in.
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Is There an Annual Fee?
In addition to knowing you’ll have to fork over in interest, you should also find out what kind of fees are associated with a retail credit card. While many stores offer cards with no annual fee there are some that do charge a premium just for opening an account. It doesn’t make sense to sign up for a retail credit card that charges an annual fee if you’re only planning to use it once to get the initial discount.
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You should also pay attention to the other types of fees associated with a store card, including late fees, over limit fees and foreign transaction fees. Making your payment even one day late can mean a hefty late charge which could eat up any savings or discounts you’ve earned.
What Are the Perks?
Retailers use store credit cards to draw in new customers and keep you coming back. So it pays to know what kind of perks or discounts you’ll get for opening an account. Typically, when you sign up for a retail credit card you get a discount on your initial purchase which can be anywhere from 5 to 20 percent, depending on the store. Sometimes you can get a larger percentage off just by asking.
Beyond the initial savings, you may be eligible to receive special coupons, get access to preview sales, get free shipping for online purchases, earn gift cards good towards a future purchase or rack up other rewards every time you use your card.
If you sign up for a retail credit card that has the American Express, Discover®, MasterCard or Visa logo, not only will you be able to use your card anywhere these brands are accepted but you could also earn cash back, points or miles when you use your card. Knowing what kind of perks you can get can help you to get the most mileage out of a store card.
How Will It Impact My Credit?
Retail credit cards are a good option for rebuilding credit or establishing new credit as long as you’re careful about how you use them. These cards tend to carry lower spending limits than other credit cards but if you’re opening multiple accounts and not paying them off, you could end up with a mountain of high-interest debt.
Opening multiple store card accounts within a relatively short period of time can actually hurt your credit in the long run, since each inquiry can cause your score to drop by ten or fifteen points. If you’re planning on using a retail credit card to build your credit, your best bet is to stick to just one or two cards and keep your balances as low as possible.
Final Word
Retail credit cards aren’t right for everyone and you may end up saving more by using a regular rewards card or shopping around for discounts and coupons. If you’re planning on opening a store account, make sure you read the fine print carefully to avoid any surprises when you get your first statement.
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Photo Credit: WestInteractive