Why Store Credit Cards Are High for the Holidays

Americans are turning to store credit cards for the holiday rush. Is that really a good idea?

You’d think that with an average interest rate of 26%, holiday shoppers would steer clear of store credit cards.

That’s not the case right now as more Americans are opting for store credit cards heading into the busy Christmas shopping season.

According to a new Lending Tree study, 35% of Americans say they’re at least somewhat likely to apply for a store credit card this holiday season. That’s up from 29% in 2021.

The 35% figure is somewhat surprising given the average new store card APR is 26.60%, up from 24.27% a year ago. That’s the highest rate level since LendingTree began tracking store credit card rates in 2018. It’s also higher than the average interest rate for all new credit card offers, which stands at 22.21%.

Additionally, as of Nov. 3, the number of store credit cards Lending Tree monitored with 29.99% interest rates rose from eight in 2021 to 29 this year.


Store Credit Card Management Tips

Should those figures give consumers pause before they sign on the dotted line? Credit card experts think so.

“People tend to make bad decisions when they’re rushed, and that’s certainly true when it comes to money,” said LendingTree’s chief credit analyst Matt Schulz. “If someone offers you a store credit card and you’re tempted, say no, ask for a brochure and then go home and learn more about the card.”

If the deal still sounds fine after you’ve done your homework, apply the next time you go to that store.

“All the perks and discounts you like about the card will likely still be available, and you’ll be making a more informed decision,” Schulz said.

That’s a good first step. Now, take these additional store credit card tips to the table when considering a store credit card.

Know what a store card represents. Make no mistake, store credit cards differ from major credit cards like Visa, MasterCard or American Express.

“Store credit cards, unlike major credit cards, are offered by a retailer and can only be used at that retailer’s store,” said Insurist chief executive officer Brian Greenberg. “They’re usually given to customers who have bad credit scores or who don’t have any credit history at all. This means they can’t be used anywhere else besides the specific retail outlet that issued them.”

The most common types of store credit cards are those offered by department stores like Target and Walmart, but some gas stations and grocery chains also offer similar products.

“The other main difference between these types of cards is how much interest you’ll pay if you don’t make payments on time,” Greenberg said. “The interest is typically higher for store cards than it is for major ones like Visa or MasterCard.”

Look at the big picture. Consumers view retail store cards as a short-term savings play around the holidays, especially with sign-up discounts of between 10% to 20% off your entire first purchase and with exclusive rewards and money off future purchases.

“Shoppers aren’t thinking big picture when it comes to rewards but rather how to save more in a single transaction,” said personal finance expert Andrea Woroch, founder of the AndreaWoroch.com financial advice website. “Rather than looking for quick savings, it’s important to think about your overall shopping habits and how you can maximize rewards across all purchases.”

A general use cash back credit card gives you more cash back on the types of purchases you make the most, Woroch noted. “That could actually help you earn more money back compared to whatever instant discount you get by opening and using a store card,” she said.

Shop around. Make sure to spend time reviewing the fine print on store credit cards, including fees, credit limit, credit rating needed for approval, and the rewards program to ensure a card is right for you.

“Review credit cards by reward types such as cash back, airlines miles, and card points at sites like www.CardRates.com to find the best one for your holiday shopping needs,” Woroch said.

Know your shopping habits, and use store credit accordingly. By and large, if you shop at Target or buy gasoline from the Shell Station around the corner, compare your store card with your retail shopping habits.

For instance, Greenberg likes the Amazon Prime Store Card, as he’s a regular Amazon shopper.

“I love this card because it gives you 5% back on every purchase at Amazon with no minimum purchase requirement,” Greenberg noted. “The only downside is that you can’t use it anywhere else. But if you’re a frequent Amazon shopper, it’s a great way to save money.”

Be Smart With Store Credit Cards

The best way to get the most out of your store card is to be smart about it.

“Make sure you’re using it for things that you really need, and not just for things you want,” Greenberg advised. “Think about how much money you can realistically pay off each month, and don’t just think about what you want and then take out a loan from the store just because it’s easy.”

“That’s not a good financial strategy,” Greenberg added.

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Union Capital Financial Group Ltd, registered in the British Virgin Islands, does not provide investment services inside the United States. The company only provides consulting, advisory and educational services.