Protect both your personal information and your credit from unauthorized store credit cards.
For shoppers looking to take advantage of holiday sales, many department stores and large retailers now offer their own credit cards. These cards typically provide additional discounts and frequent shopper rewards when used exclusively at their stores or with affiliate retailers. Many cards may also include special no-interest or deferred-interest offers on purchases made during a promotional period.
Retail store credit cards can seem like a harmless way to gain additional savings, especially as you’re checking out at the register. If the card is not used wisely, however, signing up could have a financial impact that lasts well beyond the holidays.
Before you start your holiday shopping this year, be prepared with the pros and cons so you can make an informed decision when the offers come.
What is a retail store credit card?
Retail store cards are credit cards that can be used only in a single store or at an affiliated group of stores. Like other credit cards, a store card will show as a line of credit on your credit report.
The downside is that they may carry higher interest rates than traditional credit cards. While the incentives may be the discounts or the ability to defer payment until after the holidays, you could end up paying significantly more for your purchase as a result of interest, if you can only afford to pay the minimum each month, and late fees, if you miss any payments. Missing a payment can also have a significant impact on your credit report and score.
Also, if the card has a deferred-interest promotion, you could end up paying even more in interest if your balance isn’t fully paid off by the end of the promotional period.
Six rules for using your store credit card wisely
When choosing whether to sign up for a retail store credit card, you will want to consider all of the things you would consider with any other credit card:
- Will you be able to pay off your balance in full every month?
- If there is a deferred-interest promotion, will you be able to pay off your deferred balance in full before the end of the promotion period?
- If not, how much will the credit cost you and does it fit your budget?
- Are you already managing a number of other credit cards, and if so, do you want to keep track of one more?
Here are tips and guidelines to keep in mind so you can both enjoy the benefits and reduce risky credit card debt.
Keep an eye on your overall spending during the holidays
Before you buy something, check to make sure you’re still within your budget.
One way to avoid overspending on your credit card is to set a budget for your holiday spending. Can you pay off the balance in full at the end of the month? Remember, if you don’t pay off your credit cards each month, interest will accrue on your unpaid balances, so each item you buy could end up costing more than the original purchase. To help stay on track, both during the holidays and year around, check out .
You may get a one-time discount, rewards or coupons based on your purchases, but it’s important to think about the value of these store card perks in comparison to the money you will owe if you don’t pay off the card in full every month.
Pay your bill on time
A missed payment can mean late fees and interest charges—and it can hurt your credit record.
If you have a balance on one or more credit cards, it’s important to pay your bills on or before their due dates. Being late on a payment can incur interest and fees that can add up, and a delinquency can appear on your credit history and negatively impact your credit score. Lenders use your credit history and scores to determine the interest rates they’ll offer you so it’s important that you keep your credit history clean in order to earn and keep a good credit score.
Understand the differences between zero-interest and deferred-interest promotions
These offers may sound similar, but one could have a bigger impact on your wallet.
Retailers commonly offer “zero interest” or “deferred interest” promotions with their store credit cards. If you’re considering taking advantage of one of these promos, especially to finance a large purchase like a TV or appliance, it’s important to fully understand the distinctions between the two and how they could impact your wallet once the promotion ends.
Essentially, a zero-interest promotion means that interest will not be added to the balance of your purchase during the promotional period, and you’ll only start to pay interest on the remaining balance after the promotional period ends. A deferred-interest promotion, however, is generally phrased as “no interest if paid in full in 12 months.” This “if” clause generally means that if you haven’t paid off your full balance by the end of the promotional period, interest going back to the date of the purchase will be added to your remaining balance.
Limit the number of cards you apply for
Too many credit applications can signal to potential creditors that there’s been a negative change in your financial situation.
Another good rule to getting and keeping a good credit score is to only apply for the credit that you need. Opening too many lines of credit, especially in a short period of time, like the holiday season, can negatively impact your credit score.
Don't get close to your credit limit
Getting too close to the card’s credit limit can reduce your credit score.
Store cards tend to come with very low credit limits, meaning you can come close to maxing them out in a single shopping trip. Experts recommend to never use more than 30 percent of your available credit, so make sure you’re aware of the card’s credit limit before making any purchases.
Act fast if you can't pay your bills
Your creditors may be able to help.
If you experience a financial emergency and know you’re unable to make your card’s minimum payment, . Your creditors may have programs in place that can offer assistance and help you keep your credit score and histories intact.
A retail store credit card may seem like an easy way to take advantage of additional savings this holiday season. To help keep your finances on track—well after the holidays—use these tips so you can enjoy the perks but reduce the risks.