Why You Should Avoid Store Credit Cards This Holiday Season

Can you believe it’s already November? Before you know it – the holidays will be upon us. As you start making those lists and checking them twice, think long and hard about opening a store credit card if you were planning to this holiday season.

A recent report from LendingTree® announced that 44% of consumers planned to open a store credit card this year. However, that same report said that 56% of those who have had store credit cards in the past have regretted opening and using them. Sure, the initial sign-up bonuses can be great – but if you carry a balance on one of these cards, the interest you pay with those high APRs can easily exceed what you saved with that initial discount.

While the salesperson may do a great job of talking about the perks and discounts you can get when you sign up for a store card, they almost never talk about the high interest rates you’ll have when you use it. In fact, the average APR for a new store credit card is 24.24%!

Here are a few tips for getting the most out of a store credit card:

  • Beware of deferred interest: While special financing deals really can save you big bucks, it’s crucial that you play by the rules – because what you don’t know can really cost you down the road.
  • Know your APR and fees before you apply: This is good advice with any credit card, but it’s particularly important with store cards because the interest rates are so high – and the pressure is often on to make a quick decision.
  • Anticipate deadlines, exceptions, and spending minimums:  Virtually every card has quirks and nuances. The more you know about them before you apply, the better.
  • Look for the other logo: Some store credit cards can only be used with one retailer or one group of retailers. Others can be used almost anywhere and will have a Visa or Mastercard logo on it. That’s an important distinction.
  • Resist the pressure: If you’re offered a store card and you aren’t sure what to do, say no and then read up on the card later. If the offer still sounds good to you and you know you won’t carry a balance, apply the next time you shop there.

Another idea: Bypass the store credit card and seek lower interest alternatives from First Financial. We offer personal loans to help you get through the holiday season, and low interest credit card options too.* While you won’t get 20% off your first purchase at your favorite store – you also won’t be counted in the 59% of those with buyer’s remorse who are paying off holiday debt well into the new year, after opening that store credit card. You’ll also enjoy a much lower interest rate, which equals lower monthly payments as well. Shop smarter this holiday season!

*Credit Card APR varies up to 18% when you open your account based on your credit worthiness. These APRs are for purchases, balance transfers, and cash advances and will vary with the market based on the Prime Rate. Subject to credit approval. Rates quoted assume excellent borrower credit history. Your actual APR may vary based on your state of residence, approved loan amount, applicable discounts and your credit history. No Annual Fees. Other fees that apply: Cash advance fee of 1% of advance ($5 minimum and $25 maximum), Late Payment Fee of up to $25, Foreign Transaction Fee of 1% plus foreign exchange rate of transaction amount, $5 Card Replacement Fee, and Returned Payment Fee of up to $25. A First Financial membership is required to obtain a VISA Credit Card or a Personal Loan and is available to anyone who lives, works, worships, volunteers, or attends school in Monmouth or Ocean Counties.

 

 

Holiday Credit Card Traps – Beware!


Credit Card Trap, Predatory LendingBeware: Zero interest-rate financing. Store cards with discounts. Cash advances.

As consumers gear up for the holiday spend-a-thon, there are also plenty of opportunities to get into trouble with credit cards. And if you’re not careful, you can find yourself with a lower credit score, high interest payments, and more.

Holiday spending is expected to increase nearly 5% this year, with the average consumer planning to spend $804, according to the National Retail Federation. That can make credit card deals look enticing, and too good to be true.

Deferred interest credit card offers, for example, often surface this time of year, according to Gerri Detweiler, director of consumer education for Credit.com. These offers, often announced as “zero percent interest” or “special financing” promotions, typically give consumers a grace period on interest, sometimes for a year or more.

For a consumer making a big purchase and planning to pay it off within that time, deferred interest plans can be helpful, Detweiler said. But she warned that consumers who leave even a single dollar of charges on the card by the time the deferred interest period is over can be hit with retroactive interest charges on the entire balance they charged.

She had just received a letter from Home Depot, for example, explaining that if she took its deferred interest offer and did not pay it off in full within the specified period, she would be charged interest on all her charges retroactively at a rate of 22.9%. (The store’s website describes a six-month deferred interest offer with interest rates on unpaid balances ranging from 17.99 to 26.99%).

According to CardHub, a credit card comparison website, paying off your credit card debt one month behind schedule or missing a single payment could increase your financing costs by more than 27 times if you rack up charges under a deferred interest plan. The site has compiled a list of retailers offering deferred interest plans with varying degrees of transparency.

Regulators are keeping an eye on deferred interest offers as well. In September the Consumer Financial Protection Bureau issued a bulletin warning credit card issuers against “engaging in deceptive and/or abusive acts and practices in connection with solicitations that offer a promotional annual percentage rate (APR) on a particular transaction over a defined period of time.”

Opening new credit card accounts is another potential pitfall for consumers. Many retailers encourage consumers to take out store cards, often by offering enticements like a discount on that day’s purchases, or by offering a discount if the consumer spends above a certain threshold.

“Some of these offers will be designed to encourage you to spend more,” said Jeanine Skowronski, a credit card analyst with Bankrate.com.

High interest rates

Store credit cards often carry high interest rates. And even an application for a new credit card will appear on your credit report, Detweiler said.

“Every time there is an inquiry into your credit file, that’s a risk factor and that drops your score,” she warned. “If you open three or four new retail cards over the holidays, you can wind up not only with a lot of debt but also a lower credit score. If you know you are going to refinance a house or buy a car, be careful.”

Credit card cash advances are another potential pitfall for consumers. The interest on these is often well above the interest on credit card purchases.

“Stay away from them at all costs,” Skowronski said.

For people who really want to shop with cash, Detweiler recommends an alternative to credit card cash advances: a balance transfer. Consumers can ask a card issuer to deposit cash in their account to be used to pay off another card. Often, the interest rate on that balance transfer cash will be lower, Detweiler said — but usually only for a limited time. After that, she said, “any balances left will be charged a much higher interest rate.”

Of course, there are ways credit cards can be helpful with holiday spending too. For example, consumer protections on credit cards tend to be stronger than for debit cards: consumers are typically only liable for a maximum of $50 if they fall victim to credit card fraud, and as soon as the card is replaced they can use it again. Losses on a debit card are capped at a higher level, and it can take longer for a bank to straighten out an account where there has been fraud.

Credit card price protection promises can also be helpful. These guarantees typically allow a consumer to get a refund if the price on something they purchased drops within a specified period of time. Taking advantage of those guarantees takes discipline, though, as does sticking to a holiday spending plan.

Need to transfer a high rate credit card balance without any balance transfer fees, to a lower rate card? This is possible at First Financial, where we have no balance transfer fees!* 

*APR varies up to 18% when you open your account based on your credit worthiness. This APR is for purchases, balance transfers, and cash advances and will vary with the market based on the Prime Rate. Subject to credit approval. No Annual Fee. Other fees that apply: Cash advance fee of 1% of advance ($5 minimum and $25 maximum), Late Payment Fee of up to $25, Foreign Transaction Fee of 1% plus foreign exchange rate of transaction amount, $5 Card Replacement Fee, and Returned Payment Fee of up to $25. A First Financial membership is required to obtain a VISA Platinum Card and is available to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.