Shoppers beware of store credit cards this holiday season

November 30th, 2015 Sandy Bailey
christmas shopping

“Would you like to save 15 percent by opening a store credit card today? It will just take a few minutes!”

These are words many of us are all too familiar with. It’s free money, so what’s the harm, right? Wrong.

Although we could all stand to save some additional cash during the holiday season, opening store credit cards has the potential of taking you on the fast track to high interest rates, credit score risks and overspending.

Here’s an overview of some of the risks associated with store credit cards:

High interest rates

Opening a store credit card is a quick and simple process. The merchant runs a credit check and your purchase is instantly put on your card. The problem with this is that this fast interchange offers little time to do your homework. What is the interest rate on the card? Is it a fixed or variable rate? Do I have a grace period to pay my bill after making the purchase?

Before opening any kind of credit card, questions like these need to be answered. Why? Because store credit cards interest rates are typically much higher than traditional credit card interest rates. In fact, store cards tend to have APRs of 20 percent or more. Just take a look at this list of five highest APRs on in-store credit cards from

  • Zales Jewelers credit card: 28.99 percent
  • Office Depot Personal Credit: 27.99 percent
  • Staples Personal Account: 27.99 percent
  • My Best Buy credit card: 25.24-27.99  percent
  • My Best Buy preferred credit card: 25.24-27.99 percent

Once you do the math you’ll quickly realize that it doesn’t make much sense to open a card to save 15 percent if the interest rate is 20 percent or higher.

Negative impact on your credit score

Each time you apply for a new credit card, your credit report is pulled. This counts as a hard inquiry on your credit report and can damage your credit score 10 to 30 points. Even if you don’t end up activating the card, these inquiries can remain on your credit report for up to two years. Applying for cards at multiple stores can affect your score even more – taking a hit of more than 30 points. These kinds of inquiries stay on your report because people who open multiple cards at once are seen as risky borrowers.

Applying for a new card also affects the length of your credit history. Credit history makes up 15 percent of your FICO score, and applying for a new card lowers the average age of your accounts – resulting in a lower credit score.

Finally – the limit of the card can also impact your credit. Typically store credit cards have much lower credit limits than bank-issued cards. In general, the higher the credit line, the better it is for your credit score. A lower limit can make it easier to max out a card, putting your credit score in jeopardy.  There are already so many things to worry about during the holiday season – maxing out a store card should not be one of them.

Risk of overspending

Opening a store credit card often comes with great perks like promotions, deals and sales right at your fingertips. If you are the kind of person that can’t pass up a good deal, opening a store credit card and having access to these deals will more often than not lead to overspending. After all, these promotions are designed to get shoppers to spend more.

Retailers create in-store credit cards to keep you coming back. Having a card makes you a loyal customer who will probably return to the store sooner and spend more money than originally planned. If you have a spending problem now, or have in the past, it’s best to steer clear of in-store credit cards.

For more information about in-store credit cards and the results they could have on your credit score, contact one of our bankers at your local MidWestOne Bank locations.

Sandy Bailey

About the author

Sandy Bailey is Market President at MidWestOne Bank.

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