Retail Store Credit Card Traps to AvoidAlmost everyone likes to do retail shopping, and it is especially fun when stores are offering sales and discou

Almost everyone likes to do retail shopping, and it is especially fun when stores are offering sales and discounts. But there are lots of times when it is better to ignore the retail store credit card offers, despite the allure of getting a discount on your first purchase at the cash register, and instead stick with paying by cash or with your regular go-to credit card. For starters, there are really no additional benefits that come to you for owning a retail chain’s credit card – except for occasional discounts on purchases or special offers. If you get a card for a clothing store in the mall, for example, you cannot use it to pay for a hotel room, a meal in a restaurant, or your purchases at stores in the mall that are not owned by the same identical company. You might be able to use your Gap card at Banana Republic because they are both owned by the same conglomerate corporation, for instance, but if you try to use that Gap card to pay for groceries or rent a car you won’t get very far. That’s because these in-store cards are not affiliated with major card companies like Visa, MasterCard, or American Express. They aren’t tied into the banking ATM system, either, so they will never offer the kinds of flexibility and convenience that comes from carrying a conventional credit card.

Then there is the issue of your FICO score and credit history. Although store charge cards don’t offer the perks of a Visa or MasterCard, they do report to credit rating agencies. So while you might get an instant 10 percent discount on your purchase at a retail store because you applied for their credit card, you might also lose 10 percent of your all-important credit rating because it will show up on your FICO report that you have an additional source of potential debt – namely a new credit card. Each time your credit score is accessed as part of a credit card application, you also take a hit on your credit score. So applying for 2-3 retail store cards during a shopping spree could really torpedo your overall credit score and then make it hard for you to buy a car, get a mortgage, or apply for a traditional credit card.

The interest rates charged on most retail store cards are really high compared with regular credit cards, too, so if you use your card and then carry a balance, you will instantly give back a portion of that savings you enjoyed by getting a store discount when you applied for your card. Let’s say, for example, that you buy a $200 wardrobe and get a 10 percent discount. You save $20 right off the bat. But if the interest rate is 20 percent and you carry a balance, you’ll wind up paying at least $40 a year just in interest. So if you carry the balance and pay it back over a period of three or four months you might also pay $10 or $12 in interest – so you really only saved $8 or $10 at the cash register. Keep using your card and charging new purchases while carrying a balance, and you can wind up forking over a ridiculous amount of money in interest payments. Let’s say you keep a running balance of $500, for instance, at 20 percent interest. That’s going to cost you around $100 a year – which can buy a lot of clothes at a seasonal sales event. If you happen to make a late payment, you’ll get hit with penalties and a much higher permanent interest rate, so you’ll totally wreck any plans to save money and will wind up paying so much more for those store purchases than you ever anticipated doing.

When it does make sense to use a store credit card is when you are a frequent customer and you also never carry a balance but pay off whatever you owe as soon as your store charge card bill arrives. Then you might save money on shipping if you shop online – because some stores offer free shipping to those who use their retail charge card – and you might get some special member or VIP discounts now and then.

But for most consumers – even if you are a frequent shopper at a particular store or chain – a standard credit card usually makes more sense. You can get a rewards card that offers you cash back or rebates, for example, so that instead of waiting around for a retail store discount you can accrue some incremental discounts all the time – on all of your purchases.
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