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Shoppers Should Beware Store Credit Cards

Stocks in this article: RSH

Store credit cards are rarely a good idea for consumers. They encourage impulse shopping and charge some of the highest interest rates of any credit cards on the market.

Credit cards have become a favorite political target, with New York Democratic Rep. Anthony Weiner introducing legislation to increase point-of-purchase disclosure of interest rates, grace periods and annual fees. Weiner hopes this legislation will give consumers the information they need to make informed decisions when signing up.

First, though, Weiner conducted a study documenting retail store credit cards' exceedingly high interest rates -- some as high as 28.99%. By comparison, the average credit card interest rate this week is 13.84%, according to the Weekly Credit Card Rate Report.

A study by New York Democratic Rep. Anthony Weiner documents the exceedingly high interest rates on retail store credit cards -- some as high as 28.99%.

The study surveyed credit cards at 35 major New York City stores and found the average rate was 23.83%, up from 21.71% in 2008. Radio Shack (RSH) had the highest APR in the survey at 28.99%. Staples (SPLS) and Best Buy (BBY) had cards with interest rates of 27.99%.

These cards may not be a good deal for shoppers. Stores offer them because they generate revenue. Many times, retailers lure consumers into signing up for these cards by offering a one-time discount on that day's purchases, resulting in immediate incremental revenue for the store. Once consumers have that card, they are likely to use it again and again, leading to future revenue. In addition, retailers build a valuable list of consumers who have a track record of shopping at their store. This list provides a very efficient way to promote future offers and encourage online purchases.

Mark Begor, president and chief executive of GE Capital (GE-A) Retail Finance and Restructuring Operations, said last week that the company plans to hold on to its $28 billion private-label credit card business. GE is one of the few issuers of retailer credit, providing consumer credit cards for such retailers as The Gap (GPS), J.C. Penney (JCP), Lowe's (LOW) and Wal-Mart (WMT). Providing credit cards for retailers is safer than the market for bank-issued cards, Begor says. Interest rates on the GE-operated cards are higher, but average balances are lower. According to The Wall Street Journal, this means GE makes higher margins but has less risk when consumers default. Begor also estimates that 40% of purchases at the Gap and other such retailers are made using GE-operated credit cards.

Do not sign up for a credit card with each of your favorite stores. Too many open lines of credit can hurt your credit score. Limit your total number of credit cards to two or three.

But most importantly, pay off each card's balance in full every month.

-- Reported by Bill Hardekopf of

Bill Hardekopf is chief executive of, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

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