Your favorite department store offers its own credit card. This, you think, is a great opportunity. After all, by using your favorite store’s credit card, you can earn bonus points that you can redeem for merchandise and discounts at the retailer.
But look carefully at the fine print that comes with that store credit card. You’ll usually find that the interest rates and fees attached to store credit cards make taking them out a bad decision.
And fees and rates are just two of the problems with store credit cards. Other factors make them an unwelcome addition to your wallet. In fact, the majority of store credit cards receive poor reviews.
Don’t believe it? Just look at these four reasons why store creidt cards are usually a bad idea:
1. The interest rates: If you have good credit, you can generally qualify for a credit card with an interest rate in the range of 13 percent to 15 percent. If you have excellent credit, you might be able to nab a card that has an even lower interest rate, perhaps in the neighborhood of 11 percent.
But it usually doesn’t matter how good your credit is when you apply for a store credit card. Most times, you’ll still be paying exorbitant rates.
The sad truth is that most store credit cards come with high interest rates, often 20 percent or higher. That’s simply unacceptable. Why would you apply for a store credit card with such high rates when you can undoubtedly find a credit card that is accepted all over and comes with far lower interest rates?
2. Limited Perks: Credit card issuers today are becoming ever more creative with the types of perks that they provide with their cards. Rewards cards like the Capital One Venture Card and Chase Ink Bold (business rewards card) allow users to earn points with every purchase that they can eventually redeem for airline tickets, rental cars, hotel stays, merchandise, gift certificates or the ever-popular cash-back bonuses.
Department store credit cards, though, generally stick to the most basic of perks. When you use the cards at their namesake stores, you’ll receive rewards points that will either qualify you for discounts on store merchandise or free merchandise. But you can’t use these rewards points, in most cases, anywhere else. That’s extremely limiting when considering the generous awards programs that other credit cards are offering today.
3. Limited Use: Most store credit cards can only be used at the store that issues them. It makes little sense to clutter up your wallet with a card that has such limited use. It’s also not good for your credit score: Your score will go down if you have too many open credit card accounts. It makes sense, then, to only open accounts for credit cards that you can use at a wide variety of gas stations, supermarkets, retailers, theaters, airlines and other places of business. You will find some co-branded store cards like the Lowe’s credit card from American Express that can be used and provide rewards outside of the store, but this is something you’ll want to clarify before applying.
4. Fees: Many store credit cards come with high monthly fees. Others come with exceedingly high penalty interest rates. Miss one payment, and you may be stuck paying a penalty interest rate of 30 percent or more for as long you retain the card.
The evidence is clear: If you’re looking for a new credit card, resist the temptation of store-brand cards. The odds are that you’ll easily find a non-store-brand card that offers far more benefits at a lower interest rate.
This is a guest post by CreditShout — a personal finance blog dedicated to helping you maximize your credit card rewards and improve your credit score.