Store credit cards may offer some tempting perks, like 20 percent off your purchase when you apply for a card at the cash register. I've given in to such a deal at least once.
But lately, the interest rates on these cards, already steep, have been inching higher.
According to a recent CreditCards.com survey, the average store card charges an eye-popping 23.2 percent in annual interest, up 2 percentage points from 2010, when the survey was previously done.
If the Federal Reserve begins to raise interest rates next year, as many expect, store cards could become even more expensive.
Higher rates, more cardholders. Store cards offer many rewards, from special coupon mailings and free shipping to rebates on purchases. They're also easy to get. You can apply in-store and be approved within minutes. And you don't need pristine credit to qualify.
"For folks who are trying to build or rebuild their credit, these cards can be an effective way," said Curtis Arnold, founder of CardRatings.com and BestPrepaidDebitCards.com, which follow credit card and debit card trends.
Young adults, for example, may use a store card to launch a credit history. In recent years, some consumers may have turned to store cards as a way to get around tough lending standards after the financial crisis.
According to The Nilson Report, a newsletter that covers the payment industry, there were more than 151 million store cards being used at the end of last year, up 8.3 percent from 2012. Card balances exceeded $100 billion, an increase of 4.1 percent from the previous year.
But the trade-off for easier credit is high interest rates, which are going up. Even if you have a card, you could pay more because rates are variable and would rise if the Fed hikes interest rates.
What to do. Given that, you should limit as much as possible the balance you carry from month to month on a store card. If you do have a balance, shop for a lower-rate card.
On average, bank credit cards have an annual interest rate of about 15 percent, comparatively less than what store cards charge.
If you're tempted by an in-store discount to open a card, think about it first.
"A lot of these cards are offered in really pressurized situations," said Matt Schulz, senior industry analyst for CreditCards.com. "If you think you're interested, say no thanks but take a brochure. If it still looks like a good deal later, apply the next time you go back."
Also, stick to retailers where you shop often. Some stores have rich rewards for frequent customers.
Target's credit card, for example, offers free shipping for Target.com purchases and a rebate of 5 percent on all Target purchases, among other things.
In some cases, you now have to spend more to get the biggest payouts.
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With a Macy's credit card, you don't earn rewards on store purchases if you charge $1 to $499 annually. Shop more, though, and you'll get 1.5 or 3 percent back on Macy's purchases (depending on how much you spend), plus 1 percent on all other purchases. (All cardholders can get an additional 10 percent in rewards if they sign up for the Thanks for Sharing rewards program for a $25 fee.)
Just make sure the rewards don't lure you to over-shop. Otherwise, you could end up with a balance on your card.
"Like with any credit card, no rewards are a great deal if you can't pay the balance off at the end of the month," Schulz said.
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Carolyn Bigda writes Getting Started for the Chicago Tribune. firstname.lastname@example.org.
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