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Store Credit Card: Worth the Rewards or a Path to Debt?

By March 25, 2020 April 3rd, 2020 No Comments
Store credit cards

Store Credit Cards Account For Over $90 billion of Consumer Debt.

You’re heading toward the cash counter, holding a few items you’ve picked out. You’re taking your wallet out to pay for your purchases when you hear the question you’ve heard a number of times before – ‘Do you have a store credit card?’ – followed by a ‘Would you like to get one?’ 

Nowadays, it is difficult to find any retail shop which does not offer their personal store credit card for customers. And with the benefits that it’s glossed with, it’s tempting to get one for yourself. However, most of us sign up for a store credit card without really understanding its true relevance to your shopping experience. Some would even argue that store credit cards are simply useless. 

But, before going on to compare the benefits and drawbacks of getting a store credit card, here’s a look back in time. 

A Brief History of Retail Credit Cards.

It is hard to pinpoint who was the first issuer of the store credit card programs. It was a widespread marketing scheme that was delivered by different countries simultaneously. The main purpose of the card program was to maintain customer loyalty. Customers, having received ample benefits from one store will continue to purchase at that store for an indefinite period of time. 

Some of these loyalty schemes were picked up by governments as a way to influence people into using public goods over corporately produced ones. China, for example, had a social credit system where people with high social credit scores would receive faster internet, get on high speed trains and also be able to use mainland flights. 

The time when private organizations employed store credit cards, again, is difficult to estimate as varying nations had varying programs. However, in 1994, UK’s multinational grocery and merchandise retailer, Tesco published its Clubcard program. This was a first in the UK, and other private corporations quickly picked up on Tesco’s trail soon afterwards.

What was started by the state and large supermarkets ended up being adopted by small and independent stores all around the world. The store credit card program gained massive attention, with both customers and retailers reaping its benefits. However, it is still debatable if the benefits to customers outweigh the benefits achieved by retailers. 

What are Store Credit Cards and How Do They Work? 

Store credit cards, as mentioned previously, are mainly loyalty programs to lure customers away from competing brands. They are primarily offered by large department stores but recent times have seen smaller and more local brands issuing store credit cards as well. 

The idea of the store credit card is to simply offer a reduced price from your purchases, or a purchase discount. There may be other perks attached to your card, but this varies from store to store. 

If you’re wondering how the card works in itself, there’s nothing that different from a traditional bank-issued credit card. When you use these cards for purchases, you are allowed to have a limited credit that you can pay off on a monthly basis. Added with this credit offering, you can also get a percentage discount, typically 20% to 15%, off from your initial purchase with the card. 

Some cards allow you to buy from various stores and companies, and these are called co-branded cards. They’re given out by banks that have affiliations with large companies, such as Visa or MasterCard offering discounts at popular retail stores. These co-branded credit cards can also be used in stores without affiliated networks but usually do not offer the same rewards. 

What are the Benefits of These Credit Cards? 

Apart from the discounts offered, there’s a few other benefits to using a store credit card but it all depends on the store that’s offering the card. 

Some of the advantages typically offered by stores through their cards include: 

  • Free shipping of store items, especially online outlets
  • Elongated allowance for return of purchased items
  • Special discounts and free gifts on birthdays 
  • Invitations to exclusive retail events 
  • Redeeming rewards and availing discounts in the future

These rewards are usually earned when you make regular purchase and pay off your balance before the payment period. Some find this ideal, with store credit cards being the optimal way of purchasing expensive items without spending up-front. However, do the pros really outweigh the cons of store credit systems? 

What are the Drawbacks of These Credit Cards? 

According to different research studies, store credit cards usually come with pricier systems in place. In other words, what you see is usually not what you get. And at the end of it all, you’re left with another high interest, long-term debt. 

Here are some of the disadvantages of store credit cards: 

  • High APRs will lead you to pay more in interest than what you actually save through discounts. Usually, the interest rate is higher than the discount rate that you receive. 
  • We’re inclined to spend more because you feel like we saving money. When retailers send you special rewards and discounts, they encourage you to buy pricier items, which builds up your card balance. 
  • Discounts and rewards are usually available when you purchase a minimum amount from the store. This minimum amount typically goes up to a level that you hadn’t planned on spending initially, but for the sake of the discount, you still do. 
  • The worst is yet to come when you do not pay off your credit card quickly. Store credit cards are usually sneaky with their credit card fees and deferred interests. If you do not pay on time, you will be charged higher amounts in fees for late payment. 

Other than these, you might also find store credit cards to have restricted reward programs. You need to be a consistent shopper at that specific store while also using your store credit card. Generally, until you reach a set level to finally earn a reward or a discount off a purchase. This ensures that you have accumulated enough interest at the end of your reward period while also encouraging you to be a frequent shopper. It makes great sense for the store, not so much the consumer. 

Why Are Consumers Drawn to Store Credit Cards?

Generally, consumers like to save. They love discounts and any place flashing a big sign for a sale or a discount will get people springing off with a cart to get whatever they can on their hands, whether they need it or not.

Retailers understand this tendency of consumer saving and its correlation with compulsive purchasing, and they take full advantage of it. This is why most retailers offer robust programs through their store credit cards. It ensures customers know that they will save huge amounts off from their purchases if they sign up.

However, the temporary perks and discounts are only superficial benefits if you consider the added interest payments and hidden fees. What seems like a saving today soon turns into a stress tomorrow. 

This doesn’t mean that customers should never get a store credit card, but it emphasizes the need for caution while signing up for one. Customers should inquire about the interest rates, hidden fees and everything else that comes with a store credit card.

Which retailers might offer the best credit card programs?

  1. Amazon Store Credit Card

The Amazon store credit card is a good offer because it’s more lenient in terms of monthly payments. The APR tends to be variable, depending on your dues and purchases but the standard rate falls at 27.74%. This comes with the option to pay off $149 in full within six months without incurring any interest whatsoever. 

  1. Best Buy Credit Card 

Best Buy’s store credit card is perfect because it allows for installment payments on expensive products. You can safely make purchases up to 12 months without incurring any sort of interest, but the APR stands close to 27.49% (variable) afterwards. 

Regardless of the card you’re looking at, always look into the financing options and the APR. in addition to the benefits and costs to getting signed up. You need to make sure you are responsible with your purchases and make your payments on time. Always pay more than the minimum payment and pay attention to the timeframe of all introductory programs. If you can’t commit to these things, a store card may not be for you. 

Store credit cards are simply ‘branded’ credit cards. The risk associated with this type of debt is the same, just in a branded package. We are all for savings and discounts, but do be careful when dealing with this type of credit card.

We help many consumers eliminate their store credit card debt. If you are struggling and need help, speak to one of our licensed debt consultants for free today


Your partner in debt relief, 

Consumer First Financial