This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why You Should Avoid Applying for Store Credit Cards

NEW YORK ( TheStreet) -- We've all been tempted by the immediate benefit -- save 10% or maybe even 15% on your current purchase when you apply for the store's credit card.

This is not a wise financial move for most consumers.

Most retail stores offer credit cards with interest rates between 23% and 30%, much higher than bank-branded credit cards. According to the LowCards.com Weekly Credit Card Rate Report, the average advertised APR last week among the nation's 1000+ credit cards was 14.04%.
Store-branded credit cards should be avoided.

Some cards, such as the Napa AutoCare Easy Pay and the Lane Home Furnishings credit card, are charging a jaw-dropping 30% interest on credit card purchases. Both Goodyear Tire and Rubber (GT) and Zale (ZLC) have a 28.99% APR on their cards; Office Depot's (ODP) Personal Credit Card charges 27.99%; Sears (SHLD) charges 25.24%; and Macy's (M ) credit card has a 24.50% APR.

For help sorting through the confusing world of credit cards, visit Lowcards.com .

Retail credit cards, also known as private label cards, carry higher interest rates than bank-branded credit cards because they tend to be held by riskier borrowers with fewer credit options. Issuers suffered significant losses on these private label cards during the financial crash of 2008. In fact, General Electric (GE) and Citigroup (C), two of the largest issuers of private label cards, indicated that they wanted to sell off their private label business but both failed to find a buyer.

In the past year, default rates have dropped significantly and private label cards with high rates are more appealing for banks and issuers that need the revenue. According to the Wall Street Journal, Wells Fargo (WFC) is considering getting into the private label business. Packaged Facts forecasts receivables for private label card programs to reach $152 billion by 2015 (down from the pre-recession of $156 billion in 2007).

There are plenty of reasons to avoid these retail credit cards:
  • Extraordinarily high interest rates applies to every applicant, no matter your credit score.
  • If you use the card to pay for a purchase and know you can't pay it off, you should add in the cost of your interest penalties to the price of your purchase. If your interest rate is 29.99% on a card with a $500 balance and you just make the $20 minimum monthly payment, it will take three years to pay off your balance and you will pay $295 in interest payments. Instead of paying $500 for the purchase, you are paying almost $800.
  • Retail cards can pull down your credit score.
  • Retail cards usually have low credit limits since merchants want to minimize their financial risk. If you carry a balance, this will increase your credit-utilization ratio which is an important factor in your credit score.
  • If you apply for multiple retail cards, this can can also pull down your credit score for two reasons.
  • Opening these store accounts will lower the average age of the cards in your credit history, and the length of credit history accounts for 15% of your credit score. Secondly, every time you apply for a card, the issuer may pull your credit score which is a "credit inquiry." Too many credit inquiries can lower your credit score.

    --by Bill Hardekopf

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

    Check Out Our Best Services for Investors

    Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    Quant Ratings

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    Stocks Under $10

    David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    14-Days Free
    Only $9.95
    14-Days Free
    Dividend Stock Advisor

    David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Updates with exact steps to take - BUY, HOLD, SELL
    Trifecta Stocks

    Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

    Product Features:
    • Model Portfolio
    • Intra Day Trade alerts
    • Access to Quant Ratings
    Options Profits

    Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

    Product Features:
    • Actionable options commentary and news
    • Real-time trading community
    SYM TRADE IT LAST %CHG
    AAPL $107.72 -4.47%
    FB $87.23 -2.46%
    GOOG $597.79 -3.31%
    TSLA $238.63 -4.19%
    YHOO $31.60 -1.99%

    Markets

    Chart of I:DJI
    DOW 16,058.35 -469.68 -2.84%
    S&P 500 1,913.85 -58.33 -2.96%
    NASDAQ 4,636.1050 -140.4030 -2.94%

    Free Reports

    Top Rated Stocks Top Rated Funds Top Rated ETFs