Why You Shouldn't Sign up for Store Cards - Even Just for the Bonus
You are in a store and about to check out. The person behind the counter starts telling you about his or her credit card and how he or she can save 30% on your purchase today, or he or she gives you a $25 discount right away. It is certainly tempting. After all, if you just sign your name here and fill out this form, you'll get more of your hard-earned money in your pocket. Why not do it?
It's an experience most of us have ever had. Often people say no because they're in a hurry, or they assume there's a catch, and they just don't want to deal with it. Sometimes people show up to get those extra savings.
Is it worth it? For the most part, store credit cards aren't worth signing up for.
What is a store credit card?
Store credit cards are cards that only work for one retailer or a group of retailers. For example, the Target REDCard is used in Target stores for a 5% discount on the purchase. After the purchases have been charged to the card, it works just like a regular credit card in the sense that cardholders have to pay off the balance so that they do not run the risk of exceeding their credit score.
Are credit cards useful in stores?
Sometimes, but most of the time they are not. If you are visiting a grocery store that has its own store credit card, it may be a good idea to have one. However, depending on the card's rewards, it may also be better to get a 5% credit card back from a grocery store - that way you're not limited to just one chain.
Reasons to avoid credit cards
The discount is not that great
Unless you make a huge purchase, the actual amount you save with a credit card bonus for the store is very small. It is usually only a fraction of the amount of your purchase. Sure, it is savings, but the savings are minimal in the big scheme of things, and that small positive rarely outweighs the big negatives.
This is especially important when you consider that the bonus compared to the reward you already get from your primary card. If the sign-up bonus is 10% off, but you already get 2% or 3% cashback on your card, then you actually only get a 7% or 8% sign-up bonus.
Retention cards encourage further spending
Often that sign-up bonus encourages people to do some unplanned shopping at the last minute. If you go into a store that is planning to spend $200 and there is a last minute discount, people tend to try to get more stuff with the $200 they put aside instead of being happy to spend just $160 now.
The problem is that those last few purchases are usually very unplanned and poorly considered. If there is a purchase that is stuffed into a closet and forgotten in a few weeks, it is this one. If there is ever an item that you are going to spend your money on just to find it in the back of the closet in a few months if you are wondering why you ever got this, it is this kind of last minute purchase.
You're much better off avoiding last minute purchases, and these types of credit card notifications strongly encourage you to make these types of unplanned purchases.
There's not much more to earn than the first bonus
Many credit card signups in the store offer you an initial reward for signing up, but then the lasting benefit of the card is very limited. Often that ongoing benefit comes in the form of a "points" program where purchases on the card give you a little credit at that store (often 1% of your purchase price) or only offer you a discount at that store.
The truth is that there are many, many better rewards credit cards that give you much better ongoing rewards than that. By simply finding a reward card that pays well in most places where you store and having the balance on that card paid out every month, you are going to earn a lot more rewards in the long run by simply using that reward card everywhere.
Interest rates on in-store card offers are usually very high.
If you buy something that you can't pay off right away, you will find that credit cards in-store often have poor interest rates. This means that the interest will quickly accumulate on the card if you don't pay off that balance quickly.
In fact, given the small reward that many such cards offer, simply carrying a balance for a few months will almost always cost you much more than the original reward was worth.
Some cards offer an initial interest rate of 0% to tempt you, but that teaser period is usually quite short, which means that the total savings are quite small unless you make a huge purchase.
Each card you sign up for is an additional risk of identity theft.
An additional factor to take into account is the additional risk of identity theft associated with each card you sign up for. Each credit card you have represents an account with a bank that can be hacked into and a credit card number that can be stolen and used for unwanted purposes. The fewer credit cards you have, the better in terms of identity theft.
If you are considering purchasing a new card, having that new card alone has a small negative effect on the risk of identity theft.
When should I actually register for it?
Are there situations in which you need to register for a credit card with a store brand? There are a few situations, but they are not spontaneous events to save $20 at the checkout.
The best reason to sign up for a credit card with a store brand is if it offers a reward program related to that merchant and will save you more money than other reward cards. This usually happens when you use that particular merchant a lot because it is your primary grocery store or gas station or both. An example of this can be a Costco Anywhere Visa if you buy most of your groceries and gas at a Costco and occasionally eat at restaurants. In that specific situation, the Costco card is very competitive.
However, you have to make the decision to switch to a card with a store brand away from the checkout. If a clerk makes you a credit card offer, just say no unless you are already planning on signing up for the card.
Was this article helpful?100 Posted by: 👨 Marie M. Barbosa