Tempted to Sign Up for a Store Credit Card? You'll Pay Big

Portrait of happy couple paying with credit card in store
Blend Images/Alamy

It's not coincidence that most retail outlets promote store-branded credit cards. Why? It's profitable. Why? Because the consumer pays more -- way more -- for the privilege of using them when they carry a balance.

"Retailers dangle incentives like 15 percent off a purchase to encourage consumers to sign up for their credit cards," said Matt Schulz, senior industry analyst at CreditCards.com. "But this often ends up being a bad deal. The much higher interest rates far outweigh the one-time discount for anyone who carries a balance."

The average retail credit card annual percentage rate is 23.23 percent. That's more than 8 points above the average credit card interest rate and more than double what consumers with good credit can get, according to a CreditCards.com survey released Thursday.

Consider this example from CreditCards.com, making the minimum monthly payment for a $1,000 balance:

  • Average retail card. It would take more than six years to pay off the balance, and you'll have paid an extra $840 in interest.
  • Average non-store credit card. The balance would be paid off in less than five years, and interest payments would total $396.
  • Average lower-rate card. Using a card with an APR of 10.37 percent, the balance would be paid off in just over four years, and the interest paid would be $232.

CreditCards.com reviewed the top 100 retailers by sales volume, as tracked by the National Retail Federation. Out of the 100 retailers, 36 have store cards. The highest interest rates:

  • Zales (SIG) (28.99 percent)
  • Office Depot (ODP) and Staples (SPLS) (27.99 percent)
  • Dick's Sporting Goods (DKS), HomeGoods, Marshalls, TJ Maxx (TJX) , JCPenney (JCP), Toys R Us (26.99 percent).
Despite the staggering interest rates, CreditCards.com notes that consumers can still get value from retail credit cards. If you pay your balances in full, many of these cards offer rewards and other incentives, including specials just for cardholders.

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Alan Lee

Ive taken two of the cards from stores where I bought big ticket items and received one to two years interest free when I paid in full by the end. Then I cut up the cards......writing 11 $100 checks vs one 1100 check felt better when it didn't cost me any interest.

August 07 2014 at 3:40 PM Report abuse +3 rate up rate down Reply

To pwanless - While I agree with the idea of taking advantage of in-store offers that a store credit card entitoles you to, pay it in full every montyh but watch out about cancelling, as cancelling a credit card may hurt your FICO score. You wouold think that cancelling unnecessary cards would be a good thing, but that's not how the credit reporting agencies work.

August 07 2014 at 3:29 PM Report abuse +2 rate up rate down Reply

I've not been above signing up for the card for a single purchase, especially a substantial one, paying it off the next couple of months, and then canceling it.

August 07 2014 at 12:57 PM Report abuse +2 rate up rate down Reply