via Moak: Retail credit card may cost more, clarionledger.com, 9/19/2015
If there’s a store brand on credit cards in your wallet or purse, using them could be costly. According to the website Creditcards.com, store-branded credit cards can often bear extravagant interest rates if you carry a balance. While merchants may encourage consumers to open and use store credit card accounts – in some case, with inducements such as store discounts – consumers should be aware that they can be costly.
According to a survey commissioned by Creditcards.com, the average store-branded card carries a 23.43 percent interest rate (APR), significantly higher than the national average for all credit cards of 15.00 percent. The survey — which covered 100 retailers by sales volume — found the highest APRs are carried on cards issued by jewelry chain Zales (28.99 percent) and office supply chain Staples (27.99 percent). In addition, the survey noted that fully two-thirds of retail-branded cards charge APRs of 19.99 percent or higher.
It’s not all bad news, however; better deals can be had if you have good credit. For example, Dillard’s American Express card could charge as low as 9.99 percent APR, but could be as high as 24.99 percent if your credit’s not so good. Williams-Sonoma’s Visa Signature card ranges from 13.74 to 21.74 percent. For military families, the Army/Air Force Exchange’s Military Star card program carries a 10.24 percent APR.
There are three types of store cards (not including prepaid cards):
- Co-Branded: Many store cards carry both the store logo and that of a card network, such as Visa, MasterCard, Discover or American Express. These cards can be used at any merchant that accepts the card.
- Private Label: Some merchants are using “private-label” cards, working with a private company to process the cards. These cards can only be used at the merchant whose logo appears on the card.
- Debit: Finally, some merchants are using actual debit cards, which are tied directly to your checking account. They work just like a normal debit card, but allow you to access benefits and perks offered by the retailer.
The problem for consumers (and the source of profit for credit card companies): most credit card users carry a balance from month to month. “If you regularly carry a balance, retail credit cards just aren’t for you,” said Matt Schulz, CreditCards.com’s senior industry analyst. “Even with potential rewards and discounts, the math just doesn’t work in your favor when interest rates are that high, so your best move is to shop around for lower-cost options.”
While terms like “APR” and “compounding” still mystify many consumers, they make a real bottom-line impact on the average consumer who racks up more credit card debt than they can pay off in a month. Here’s a simple illustration: If you had a credit card with an APR of 23.43 percent, used it to buy $1,000 worth of merchandise and made only the minimum payments on time, it would take you six years to pay it off. You would also pay $838 in interest payments, making that $1,000 worth of merchandise cost you $1,838. But if you did the same thing (this time with a 15-percent-APR card), you would be out of debt 18 months sooner and pay $468 less.
Businesses with credit card programs use aggressive marketing tactics to get consumers to use those cards. For example, some consumers get regular coupons or gift cards in the mail, but they have to be used with the credit card. Often, such inducements can end up costing you, because you might be enticed to buy merchandise you otherwise wouldn’t have. But if you do make that purchase, paying it off in one month will help you avoid the extra costs of credit.
And most experts advise consumers to shop around. “Store cards can be a decent choice for people who are rebuilding their credit or just getting started with credit,” notes Creditcard.com. “People with good credit who are searching for a new card might be better served by a general-purpose rewards card, such as the Citi Double Cash card or the Capital One Venture Rewards card.”
You should also consider applying for a general credit card; besides APRs that are generally lower, they are used pretty much everywhere.
One more thing: adding to your minimum payment is always a good idea, and even a little extra can have a dramatic effect. In the example I gave earlier, if you added just $10.00 a month to your minimum payment, you would save 29 months and $361.
But whatever your situation, don’t let yourself be pressured into a quick decision. “When offered the card, ask for a brochure instead, then go home and read the details,” Creditcards.com advises. “If it still sounds like a good deal after reading the fine print, apply the next time you’re in that store. Chances are that all of those perks you liked will still be there, and most important, you’ll make a more informed decision.”
To read the survey results in their entirety, visit http://bit.ly/1LQd8CA.