It's time to flex your credit-card-swiping muscles to prepare for the holidays – but what type of credit card will you be swiping? Will it be a general-use credit card, or a store credit card designed to maximize rewards with one merchant?
A new LendEDU.com survey provides insight into store credit cards and their holiday use. During the holidays, retailers increase pitches for their store card, including bonuses and perks – and many consumers take retailers up on the offers. Almost half of respondents (47.6%) signed up for a store card, thanks to a successful sales pitch at the register.
Over two-thirds of store credit cardholders (67.7%) have two or more store cards, and just under half (48.8%) of respondents plan to apply for another store credit card over the next twelve months. That makes sense, given that over half of respondents (53.1%) consider a store credit card necessary to meet holiday expenses.
What attracts us to store credit cards? Almost 59% were attracted by an immediate discount, while 22% liked the accompanying 0% annual percentage rate (APR) introductory offer. Introductory 0% APR offers are tricky, as many store cards offer deferred interest APR periods instead of the waived interest period of most general-purpose cards.
With a deferred interest offer, if you don't pay off all purchases during that introductory period, you're responsible for paying all the accumulated interest during that period – an unpleasant surprise given that store credits generally have APRs well above the average. (We say surprise because 44.5% of respondents didn't know the difference between deferred and waived interest.)
Almost 45% of respondents didn't know the APR on their current store cards, suggesting that many consumers don't consider interest charges when they select a card or make holiday purchases. They should.
If you carry a balance, high APRs will quickly wipe out your savings – and the survey suggests many consumers do just that. Over 65% of respondents regularly carry a balance on their store cards, and more than 15% haven't fully paid off their debt from the last holiday season. Approximately 35% of respondents have maxed out their store card (spent up to the credit limit) at least once.
The temptation of holiday bonuses on a new store card can lead to overspending. Over two in five respondents (41.3%) admit spending more on their store card just to reach a spending threshold for a rewards program.
Will any of these factors dampen our shopping with store cards? Probably not, according to the survey. Over 54% of Americans plan to put more than 40% of their holiday purchases on store-brand cards.
If you're going to apply for a store credit card to get rewards, the card should fit into an overall spending plan. Make sure that rewards are within your spending limits, are worth any potential interest charges or other fees, and that you are likely to redeem the rewards.
Use your store card periodically after the holidays for small purchases and pay those purchases off in full each month. That will keep your credit score high by racking up on-time payments and keeping your in-use credit low compared to your credit limit. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
According to the LendEDU survey, over 85% of store cardholders don't regret their decision. Hopefully that holds true when the bill comes due in January.
Be among those with no regrets. Use your store card wisely this season, or don't use them at all.
If you want more credit, check out our list of credit card offers.