No matter what type of retail therapy consumers prefer, there is almost certainly a store credit card available to entice. From the retail giant Walmart, to Big Lots, Macy’s, Ikea, Lowe’s, Gap, and a veritable plethora of others, there is a store card at a store near you. Whilst astute use of store cards reap some benefits for shoppers that clear the monthly balance in full, many consumers fall into the trap presented by the disadvantages of store cards.
The worst feature of store cards is often the aggressive sales pitch by retail assistants who are totally unqualified to sell financial products. Due to the relative ease of obtaining store cards as opposed to credit cards, they are often deliberately targeted towards young shoppers unfamiliar with using credit. The lure of an instant discount at the point of sale can fade into insignificance once the terms and conditions are taken into account. Unfortunately, a busy store is rarely the ideal place to acquaint oneself with the small print, or take into account more than the headline advertisement promoting the benefits.
The discounts offered on store cards are not always a good deal, often restricted to the first purchases. The discounts can be taken advantage of by those who plan to sign up for a card knowing exactly what they will purchase and how much they will save. However, it is more common that the benefit of the initial discount is lost as shoppers sign up under pressure.
Some store cards offer rewards programs which can be misleading unless the small print is studied. As an example the advertised 1 percent cash back on the Wal-Mart card does not kick in until the consumer has spent $3,000 on the card; all spending up to $1,500 is only rewarded with a pathetic 0.25 percent.
Store credit cards generally offer very low credit limits. Due to the low credit limits it is easy to use too much of the available credit, which in turn can have a negative effect on ones credit rating. Considering that it is advisable to use no more than 30 percent of available credit, store cards with low limits offer little purchasing power before leading the card holder into the danger zone for good credit card use.
Any cardholder who routinely carries a balance will pay often exorbitant interest rates on store cards. Typical APR’s are in excess of 20 percent and often close to 30 percent. The current interest rate on the Macy’s store card is 24.5 percent and 22.9 percent on the Walmart credit card. All interest charges can be avoided of course by paying the balance in full but consumers who fail to do so are paying far over the odds and negating any benefits they obtained through discounted purchases.
Unlike credit or debit cards which can be used almost universally, store cards limit shoppers to stores within a certain group. Thus consumers are more likely to carry a standard credit card as well as a store card, and using a regular cash back card will often be more advantageous than using the store card even in the affiliated store.
As with all financial products, the disadvantages of store cards surface when consumers use them in an irresponsible way without familiarizing themselves with the details of the terms and conditions. Used astutely, store cards offer certain advantages, but the card issuers benefit most by consumers failing to use them responsibly.