Always read the fine print: Take these precautions before signing up for a store credit card
When Mykail James was 19 and worꦜking a holiday job at Victoria’s Secret, she took out a store credit card with a $2,000 credit line.
Wh𒊎en her school break was over, she realized she could no longer afford the payments.
After missing a few, she paid off the card only to find that her credit score had decrease🥃d dramatically, affecting her ability to access other types of credit.
“I didn’t get an actual bank credit card until I was 21, just because of that fear,” said James, who is now a financial expert and 🦋creator of The Boujie Budgeter. “Because of how it impacted my credit and also made it harder for me to buy a car a couple of months later.”
With around the corner, experts recommend caution when your favorit🅠e store offers you a credit card.
“If you’re offered one at the checkout counter, most of the time i🐽t makes sense to say no,” said Ted Rossman, senior industry analyst at Bankrate.
According to the Federal Reserve, outstanding credit card balances reached $1.14 trillion as of August 2024, meaning credit card deꦑbt is increasingly a concern for millions ꦍof Americans.
Bankrate found that the average store-only credit card has an aveಌrage annual percentage rate of💟 30.45%, significantly higher than the average APR of 20.78% for all credit cards.
The APR is how much interest you’ll be charged if you can’t pay your ba๊lance in full every month.
Here are recommeꦑndations from experts when considering 👍a store credit card:
Don’t immediately say yes to a store credit card
Store credit cards are usually offered at checkout, and they provide shop💫pers with a line of credit that incentivizes spen🎃ding more on the store’s products.
If not managed correctly, these credit cards can negatively i♑mpact your credit history.
When offered a store credit card, Bruce McClary from the National Foundation for Credit Counseli♔ng recommends that you don’t say yes immediately.
“Ask for something with all the details in writing that you can take with you and review for 🐽a later time,” McCl🦩ary said.
Oftentimes, store credit cards are tღied with a promotion suc🌟h as 0% interest for a year or a discount on your purchase.
And while these mig♚ht sound appealing, it’s best to not rush the decision while you’re at th🎀e counter.
Understand the details of the agreement
Before signing up for a store credit card, you must read the fine print, Rossman said, including ho♛w much interest will be charged if cards aren’t paid in full and any late𒁏 or penalty fees.
“A lot of times, these retail cards charge tremendously high interest rates,” Rossman saꦗid.
Another t🥂hing to look out for is “deferred interest,” which is when credit cards offer a promotion such as 0% for 12 months but, if the customer doesn’t pay in full by the time the promotion expires, they are charged retroactively for all of the interest that accumulated during that time.
Do your research
If you’re looking to acquire a store credit card, McClary recommends that you do some research on the retailer. Looking at reviews o⛄nline can help you identify if others have complaints about their store credit cards.
Additionally, McClary rec🅷ommends🐠 that you ask yourself these questions:
— How often do you shop at the store?
— Are you going to be using the card enough to benefit from the rewards 🍰and discounts that 𒉰come with it?
— Can you use another type of credit card?
— Can you a🌟fford to pay the card in full at the end ♐of the month?
— How many credit cards do you have? Is it worth adding another l▨ine of credit?
These questions will help y🐈ou determine if a store credit card is right for you or if you’d be better off with a different type of credit card.
Best practices if you have a store credit card
If you decide that a store credit card is a good option, it’s important to pay y✃our card in full each month, McClary said.
It’s also a good practice to only spend what you can afford🐷 to pay off in one billing cycle, even if your line of cr♏edit is higher.
“You want to keep yourself from getting into this u𝔉nmanageable cy♏cle of debt,” McClary said.
A tip to build healthy habits is to set specific parameters when using your store credi𝔉t card, James said.
For example, using your store credit card onl꧅y for purchases over $50.
That way you can reduce the🉐 amount of money you spend on y♌our credit card and it is easier to keep track of your expenses.
Store credit cards as a way to build credit history
Store credit cards were once known as a tool to build your credit history if you’d never had a🐲 credit card befไore.
This is because ret𒉰ail credit cards have fewer requirements to get approval.
However🍎, in recent years there has been an influx of other credit cards that provide help for people build their credit history, McClary said.
If you are looking to build your creಞdit score, McClary recommends you consider s🐈ecure credit cards.
These cards are con🗹𒆙sidered secure because the lender usually asks for a deposit and the line of credit is lower than other credit cards.
Once you’ve used secure💖 credit cards and bui🅰lt your credit report, you can graduate to a traditional credit card.
Store credit cards vs. Buy Now, Pay Later
Since Buy Now, Pay Later services became available, retail s🅷tores have been offering them to cu♏stomers along with store credit cards.
It’s important to understand the differences.
Store credit cards work like traditional credi🦩t cards.
By filling out an application, you request a soft inquiry in your credit report and if you decide to get the credit card, this line of 🍷credit will be reflected in your credit score.
Buy Now, Pay Later services are not shown in your credit report and they are usually tied to a specific purchase and are not a 🍃revolving line of credit.
“Companies like Affirm, Afterpay and Klarna have been cutting into the market share of store credit cards because they fill a ౠsimilar kind of niche,” Rossman said.
Both witꦍh store credit cards and BNPL services, customers should proceed with caution to avoid getting caught overspending which can lead to great amounts of debt, he added.
