Why You Should Say No to That Store Charge Card

Photo by {artist}/{collectionName} / Getty Images

Photo by {artist}/{collectionName} / Getty Images

by Eunice Armstrong

"Would you like to save an extra 10 percent today?"

How many times do you hear that while checking out? Retailers train their employees to pitch to you and convince you of the perks and benefits of signing up for their credit card. Just because a store offers you a tempting discount to sign up on the spot doesn't mean that you should do it. If you’re about to make a $200 purchase, the cashier will quickly indicate to you that using the card will save you $20. Now, this expensive purchase seems less expensive but let’s consider what owning a store card really means beyond that initial price break.

There are generally two different categories of store credit cards. Private-label retail cards, which can only be used at the retailer that sponsors it. These are generally easy for people with low credit scores to obtain because the underwriting standards are more lax than those of traditional credit cards. But if establishing credit is your primary goal, why not seek a secured credit card instead? They have lower interest rates and much easier to maintain. The other kinds are co-branded store credit cards, which are sponsored by the retailer but backed by one of the major networks: Visa, MasterCard, American Express or Discover. These cards can be used at nearly any retailer, just like a traditional credit card product. Alas, underwriting standards on these type of cards are the same as traditional credit card products, so consumers with low credit scores or shallow credit history won't qualify.

Keep in mind that a store’s primary focus is always about getting the customer back into the store to spend more money. It can take a significant amount of spending just to reach the different tiers and to actually enjoy some benefits of the rewards program. Take time to consider if you are even shopping at the store frequently. The annual percentage rates on these products tend to run high, 22.9 percent is a common APR on such cards. In a few months, your 10 percent discount has been eaten up by finance charges. Undisciplined shoppers could easily rack up a bill they can't afford to pay off at the end of the month, which would negate the value of any rewards or discounts you’ve just “earned” on the purchases.

If you do decide to take your favorite retailer up on an offer, make sure to carefully read the terms and conditions. Check to see if the card carries an annual fee and what the APR will be once any deferred-interest promotions lapse. You should also ask at the register how you can pay your bill, because in order to qualify for the promotional discount, that day's purchases will typically be charged to the new card. You could easily miss your first card payment, incurring late fees, interest and other potential penalty charges. Like any financial decision in your life, make sure you are well informed and understand the implications of your choices.