PGCFCU Blog

You recently signed up for your favorite retail store credit card because of the additional discount available at checkout. If that wasn’t enough motivation to sign up for the card, the promise of future member benefits such as cash back or points made it a no-brainer. An extra 20% off now and access to exclusive offers as long as you own the card – who wouldn’t say no to that? But, it might not be worth it. The expenses associated with using your retail card may cost you more than the initial discount and special sales combined.

Here’s what you should know before you sign up for your next retail store credit card.

High-Interest Rates Are The Norm

An annual percentage rate or APR is the cost for borrowing money. Unless otherwise stated on a credit card’s disclosure statement, you can avoid paying the APR by paying off the balance in full before the due date. With an average median APR of 25.64 percent, retail store credit cards are costly when you carry a balance. This is nearly 8% higher than most Mastercard and Visa credit cards which are found to represent the national average APR of 17.64 percent. High credit card interest rates should immediately make consumers think twice before signing up for a new card.

If you sign up for a retail store card for the extra 20% off at the time of purchase, but the card carries a 25.64 percent APR - suddenly, that great deal on your new pair of jeans doesn’t sound so great. Credit card issuers make money when you do not pay off your balance each month.

Good credit is unlikely to help you secure a retail credit card with a low APR. Put your good credit to work and obtain a credit card with a low-interest rate. Are you worried about missing out on the retail discounts? Sign up for their mailing list to receive notifications about upcoming sales and special discounts.

Deferred Interest Could Still Mean Interest

Deferred interest may have you dismissing the high-interest rates of retail cards. You can indeed defer or delay paying interest for a set period established by the retail card issuer. When you read the fine print, you’ll find that deferred interest does not mean “no interest.” Here’s why this distinction is important.

During a deferral period, interest is not applied to the balance. For example, some national furniture store chains advertise “no interest until” a specific date. This is a great time to pay a large balance in full. When the deferral period ends, the balance on the card may be subject to retroactive interest. That is, the interest has been building in the background and will be added to the card if there’s a balance at the end of the promotional period.

Your Credit Score Might Take a Hit

The low credit limits of most retail cards make it easy to stay at or near your credit limit. A credit line of $300 can get maxed out in a matter of one or two shopping trips. This is terrible news for your credit utilization percentage, which is a critical factor in credit scores. Paying your bills on or before the due date is the most important thing you can do to positively affect your credit score. Your account balance in relation to your credit limit, aka credit utilization, is the second most important. The major credit reporting bureaus and credit scoring agencies recommend your credit utilization remain below 30 percent.

When a Retail Credit Card Might Make Sense

Despite drawbacks, sometimes signing up for a retail store card can benefit you. For example:

• If you’re starting out and you’re trying to establish credit. Retail card activity appears on your credit report.
• You only make purchases with your retail store credit card that you can pay immediately. This might be important is your goal is to secure rewards point with the card. The store may even encourage you to make the charge with your retail card and pay the balance at the customer service counter before leaving the store.

Even if these scenarios match your situation, a Visa secured credit card might still be the better option. You control the credit limit since a secured card’s limit is equal to the funds in your savings account. There’s no credit check and your payments are reported to the major credit reporting bureaus which can help build or rebuild your credit. You’ll be able to use it anywhere a Visa is accepted.

 

Already have one or more retail credit cards? Consider transferring your high-interest rate credit card debt to a lower interest rate Visa Elite Rewards or Visa Platinum card. Take advantage of our Visa credit card balance transfer promotion 2.99% APR for the first six months on new cards. These fixed rate, no annual fee credit cards can be used anywhere Visa is accepted. Apply now or contact us today to learn more about how you can save money with a credit card balance transfer.