Credit card payment pain? Pros and cons of store cards from Walmart, Amazon, Costco, TJX and more

Everyone’s been there: You step up to the cash register with a cool pair of jeans or kicks, and the clerk greets you with that familiar pitch: “Want to save 15% on your purchase today by opening a store credit card? It’s easy!” And it’s tempting, because who doesn’t want to save money? But before you proudly prance away from the counter, feeling like a smart shopper, it’s important to do a gut check — and make sure the card you just opened doesn’t actually end up costing you money in the long run.

That’s because retail store credit cards tend to have higher interest rates than credit cards on average — about 26% versus nearly 16% for all new cards. The rates are higher because people who take out retail credit cards are less likely to pay off their bill: Whereas the percent of balances that went unpaid in 2017 on retail cards was 5%, it was just 3% for regular cards, the Wall Street Journal reported. Of course, retailers — like Walmart — make it hard for you to find that crucial APR information on their credit card landing pages, which tend to tout rewards programs instead, meaning you need to hunt down reviews to find out if those rewards are even worthwhile, or “nothing to write home about” given high APRs, as ValuePenguin put it in a review of the Walmart card.

Of course, if you always pay your bills on time and are trying to build credit, you might be willing to stomach a high interest rate in exchange for a new piece of plastic. Just proceed with caution. “If you can’t afford to pay off the purchase at the end of the month, a retail credit card is probably a bad fit for you,” CreditCards.com senior analyst Matt Schulz said in a phone interview. “It just doesn’t make sense to pay a 25% interest rate to save 15% on a purchase.”

Now, interest rates vary widely depending on which store credit card you get. Some, like the Big Lots credit card, can whack you with a rate of nearly 30%, while others like Kroger 1-2-3 Rewards Visa charge a more reasonable 15% if you already have good credit — but up to 25% if you don’t.

Another key factor to consider is whether you can only use the card with the retailer who issued it. If that’s the case, as it is for certain closed-loop cards from Amazon, Lowe’s and Target, it’s only worth it if you’re a regular there.

You’ll know yours is a credit card you can use anywhere if it has a Visa or MasterCard logo on it. How else can you decide if a store card is worth it? Here are four scenarios showing when opening up retail plastic is smart — and when it doesn’t make sense.

1. Worth it: When store credit card rewards and discounts really save you money

In some cases, you can walk away with a credit card that pays you back on an ongoing basis — but only if you are super loyal shopper. “A retail credit card can be a good thing if you are going to make a really big or frequent purchases at that retailer,” Kim Palmer, credit card expert from NerdWallet said. “Some cards come with significant benefits, plus when you get 10% off the total amount of that big purchase, you can save money.”

You may even be able to rack up rewards other cards can’t match: “Aim for a store credit card with big rewards and low fees — it helps that 99% of store cards do not charge an annual fee,” Jill Gonzalez, analyst for WalletHub said in an email. Here are five examples of how you can save money:

• Amazon Prime Store Card earns Prime members 5% back on all Amazon.com purchases.

• Costco Anywhere Visa by Citi offers 4% cash back on gas, 3% back on restaurant and travel purchases and 2% cash back on all Costco purchases.

• Gap Inc. Visa gives you 10% off purchases at Gap stores, either in store or online, once a month in addition to letting you accrue points each time you shop at Athleta, Banana Republic, the Gap or Old Navy.

• Macy’s credit card gives “platinum” members 5% cash back, free shipping and 25% off purchases one day a year through Star Pass.

• T.J. Maxx TJX Rewards Card gives you 10% off your first purchase plus $10 in rewards certificates for every $200 you spend at T.J. Maxx, Marshalls, HomeGoods and Sierra Trading Post stores. That’s like 5% cash back.

ValuePenguin also recommends the Target REDcard credit card. For more good store credit cards, check out these recommendations from CreditCards.com, NerdWallet and WalletHub.

2. Worth it: To build credit — so long as you pay off the balance in full each month

Because the approval standards are laxer than with other cards, store cards are much easier to get for those with less credit history. Often you can get instant approval right at the cash register. “Store credit cards can be great for people with bad or fair credit,” WalletHub’s Gonzalez said.

As long as you’re careful about how you use them, store credit cards can help you build a solid credit history. The trick here is to keep your balance low and be fanatical about paying your bill before the deadline.

And be careful: Because store cards tend to have lower credit limits, if you charge too much on them, you could hurt your credit utilization ratio — which measures how much of your available credit you have used. And that, in turn, could actually lower your credit score.

You might also want to consider waiting to open a store card if you are on the verge of making huge purchase like buying a house or a car. “Every time you apply for a credit card, your credit score is temporarily dinged and it could have an impact on the loan rate you receive for the house or car,” NerdWallet’s Palmer advised.

3. Not worth it: If you tend to open up cards and never use them

Opening up a bunch of store cards just to get a one-time deal on a big purchase at checkout can cost you in ways you don’t realize: Every card you open creates a hard inquiry on your credit report, which can put a temporary ding in your score. It’s fine if we’re talking just one card, but if you do that a few times a year, you can wind up with enough hard inquiries to lower your chance of getting approved for the cards you actually want — and increase your chance of getting stuck with higher loan rates.

On a more practical level, opening a bunch of cards means winding up with a mess of random bills and a stack of cards you never use. It can be a pain keeping track of bill due dates for new accounts, and forgetting to pay the bill will lead to additional fees. What’s more, anything you buy with a store card means fewer points on your favorite rewards cards, which could make it harder to earn those free flights and hotel rooms you’ve been working toward.

Instead, think carefully about which cards are really going to pay off. Once you do open one and make a purchase, make a note of the first bill due date, set a reminder on your phone 10 days ahead of time and be sure to follow through.

4. Not worth it: When interest is deferred and you can’t pay off the balance in time

A store card with a 0% introductory interest rate and plenty of time to pay off the balance can be especially handy around the holidays. Just be aware that an introductory rate isn’t the same as a deferred interest rate — and knowing the difference is extremely important.

Unlike with an introductory rate, where you only pay interest on the remaining balance once the promotional period expires, deferred interest means you will end up paying interest on the total amount of your purchases, even if you carry a very small balance after the promotional period is over, NBC News reported.

So if you bought a new bike for $400 and your credit card offers you no interest — if paid in full in 12 months — and you pay off $300 during the year, you could still end up owing $165 on the remaining balance with a rate of 25%.

Even though you only actually owe $100, the 25% interest will accrue over the 12-month period, which tacks on an additional $65 to your remaining balance.

The best way to avoid heading down the deferred interest path is to look for the warning signs like, “no interest if paid in full within 12 months” or “0% intro APR on purchases for 12 months,” CNN reported. Other verbiage that should tip you off to the deferred game include “if” or “until” in the agreement or “buy now and pay no interest until next year.”

Best Buy, Home Depot, JCPenney and Staples were among the many retailers offering cards with deferred interest rates, WalletHub reported in November.

For more on the best credit cards to meet you needs, check out Mic’s guide to the best rewards cards, best cards if you’re broke and best cards overall.

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