Retail credit cards are likehoverboards: popular during the holidays, potentially useful, and liableto throw you off balance at some point and leave you hurting.
Retailers typically see an increase in newstore card accounts during the holidays. Research from TransUnionshows that discount stores and online retailers opened new accountslastDecember at twice the rate ofother months; jewelry stores saw a nearly 80% increase, and other types of stores also hadsignificant increases. The credit bureau expects this trend to continue this year, says Nidhi Verma, senior director of research and consulting with TransUnion.
Storestryto capitalize on the holiday rush by sweetening sign-up bonuses or encouraging employees to promote store cards at checkout. But just because everyone’s signing up doesn’t mean you should.
Obviously, the millions of shoppers plowing through theaisles this time of year have something to do with spike in new accountsduring the holidays. November and December account for up to 30% of annual sales for some companies, according to theNational Retail Federation. But that’s only part of the story.
“[Retail credit cards] tend to be more aggressive in their offers during the holidays,” Verma says. Some big-box retailers, such asSears andWal-Mart, offer souped-up rewards or discountson store cards during the holiday season. With certain retailers, you can get as much as 30% off your first purchase.
From bringing out the pumpkin spice air freshener to hiring mall Santas, retailers go to great lengths to get you to spend more during the holidays — and that can make last-minute credit card offers seem more appealing.Some companies also boost sign-ups by requiring employees to pitch these cards or paying bonuses for getting consumers to apply.
Also, store cards offer easy credit when people need it most. TransUnion noticed the biggest lift in applications during the holidays among cardholders with fair credit or poor credit, Verma notes. Those same consumers might have trouble qualifying for general-purpose credit cards, which usually require a credit score above about 660. Many store cards will approve applicants withlower scores.Why you should say no
Retail credit cards are a terrific deal — for retailers.
On average, stores with credit card programs see their cardholders spend more and shop more frequently than the average customer, according to an analysis byFirst Annapolis Consulting. For some retailers, branded credit card programs account for more than 50% of annual sales.
But there are significantdownsides:
They canhurt your credit. Store cards tend to come with very low credit limits, meaning you can come close to maxing them out in a single trip. If you’re already starting with shakycredit, using too much of your available credit could damage your scores further.
They come withhigh interest rates. Retail cards tend to charge interest rates of20% to30% — higher than the typical general-purpose card. If you carry a balance, those interest charges will quickly outweigh any discounts you might receive, and could land you in a debt cycle.
Their deferred interest deals can be dangerous. Store cards that offer “no interest if paid in full” by a certain time sound like 0% APR cards, but they’re not. They’re deferred interest offers.With these cards, you can end up being charged hundreds of dollarsin retroactive interest if you don’t haveyour balance completely paid off.
If you’re jumping on the retail card bandwagon this holiday season, you can still come out ahead on savings — but it takes some effort. Follow these steps to protect your finances:
Make a list of your due dates. “Enjoy your time with your family, but when you get that credit card statement, make sure you’re making those payments,” Verma says. If you miss your due dates, you could rack up late fees. And after 30 days, a missed payment will hurt your credit.
Don’t go overboard. If your neighbor’s overly ambitious holiday light display is better than yours, just say, “Nice job.” Don’t run up the balance on your store card just to stock up on caroling, light-up, robot snowmen. To protect your credit score, useless than 30% of your available credit on your credit cards at all times.
Swear off balances for good. The holidays are a time of indulgence — but when it comes to store cards, discipline matters. Make a habit of paying your cards in full every month, no matter what. You’ll save a bundle on interest charges and start the new year with less debt.
The article Store Credit Card Applications Surge During the Holidays — but Should You Get One? originally appeared on NerdWallet.