The Truth About Your Store Credit Card

“Would you like to sign up for the credit card to get 10% off your purchase today?”

If you’ve ever heard a variation of this sentence while buying bread and bananas or a new pair of pants, you may have considered getting a store credit card.

These types of branded cards are offered at almost every big-box store you can think of, often promoted with discounts, “VIP status”, and big signup prizes. But the truth is, they’re almost never a good idea, and they could be doing more damage than you’re aware of.

Let’s talk about the truth behind your store credit card, what you should consider before signing up, and what to think about if you already have one of these in your wallet.

What’s The Deal?

With hundreds of credit cards now available, it’s no surprise that grocery stores and retailers have developed branded credit cards just for their customers. These cards are pushed indiscriminately to customers, at the till, among the aisles, and even at the gas pumps. Blurring the lines between credit card and loyalty program, these cards are increasing in popularity– but what’s really in it for the customer and the store?

For the customers, it’s simple: the cards offer deals, bonuses, and perks that grab your attention.

For the store and the credit card company, the incentives are bountiful:

• It’s easier to sell a credit card in a location that’s already full of paying customers (whether physical or digital).
• It’s easier to catch your attention with a promotion related to a brand you already know and use.
• Store credit cards typically have higher interest rates and/or fees.
• Store credit cards can encourage customers to spend more or develop more loyalty towards a specific store.

Why You Should Think Twice

You should think twice and read the fine print about any card or credit product you’re considering, not just store cards. However, it may be harder to think through your options if you’re being targeted by a quick popup online, in line at a store, or with a grabby promotion.

Here’s the truth behind most store cards:

• Most of these cards have high-interest rates
• Most of these cards have low credit limits (bumping up your credit utilization ratio)
• Many also include penalties or interest rate hikes for missed payments
• Many of the rewards don’t actually end up giving you the benefits you expected

Ask yourself a couple of questions before applying:

• Will the interest costs negate any benefits if I can’t pay off the full balance each month?
• How many times have I really shopped at this store in the last year?
• Will this card just encourage me to spend more at this store?

Making Your Decision

In most instances, the benefits you’d get from a store credit card don’t outweigh the risks and high fees associated with them. Even if you are truly a frequent shopper at a specific store, you’re likely better off doing your research in the world of reputable credit cards, not limiting yourself to a store card.

Even setting aside the issues of fees and penalties, the most important question to ask yourself is this: Do I need this credit card?

What To Do If You Have A Store Card

If you’ve already signed up for a store card, there’s no reason to panic. Just like other credit cards, responsible management is key. Here are a few quick tips:

• First, get to know your card. If you didn’t read the fine print when signing up– now’s the time. Understand your rates, potential penalties, and the actual benefits you’re getting.
• Second, ask yourself if you really need the card. If the card is newer, you may want to close the account entirely if it’s not useful.
• If the card is one of your older credit accounts, it’s probably not wise to keep it open for your credit history. 
• Third, try to minimize spending, keep the credit utilization ratio low, and always make your payments. The interest rates and penalties on store cards may be harsher than your other credit cards, so you may need to prioritize these payments.

If you’re struggling with debt on a store credit card or other high-interest credit card, you may want to consider debt consolidation. Consolidating this type of debt with Parachute could provide you with a lower interest rate and save you money on your monthly payments, but it can also:

• Address spending habits that are causing you to build up more debt on the card
• Give you access to a behavioural platform to rebuild your wealth
• Reward you for taking the right steps each month

Learn more about Parachute today to explore your options.