Macy, Best Buy, Walmart, Ikea Branded Credit Cards

Here’s a blast from the past — a post written well over two years ago on five reasons to stay away from store branded credit cards. Reposted today for your amusement.

Every time I see a person sign up for a retail store credit card at the check-out line, a little part of me dies inside. I would scream “No! Don’t do it!” silently, hoping to convey my dismay telepathically — unfortunately, it never seem to work.

There are about sixty-seven different reasons why you shouldn’t apply for a retail store credit card, but for the sake of simplicity and my sanity, let’s just go with five:

  1. Shady credit lenders.
  2. Interest rates are ridiculously high.
  3. Tarnish your credit with unnecessary line of credit.
  4. Benefits are usually nil while penalty fees are usually in abundance.
  5. Some are store-only credit cards and can’t be used for purchase at other locations.

Reason #1: Shady Credit Lenders

When you apply for a store credit card, it is usually issued by a sub-prime lender in partnership with that particular store. You may enjoy shopping at that particular store, and the store may have great customer service, but be wary in associating the store’s credit card offering with the actual store.

Store cards like Gap Card, Banana Republic Card, etc. are issued by the infamous Monogram Credit Card Bank, an offspring of GE Money. They are notorious for their shady practices, such as magical late fees and magical finance charges even if you paid balance in full. If you don’t pay attention to the actual bank that issues the line of credit, you’ll be doing yourself a major disservice.

Reason #2: High Interest Rates

The interest rates are ridiculously high. Expect APR in the ranges of 20%-24%

“Sign-up for an IKEA card and get 15% off right now!”

Wow. 15% off the brand new dorm room set sounds like a smashin’ deal—but not if you carry a balance. Alright, no problem—all you have to do is pay in full and you’re set. Except when you deal with shady lenders like mentioned above.

“Woops, we accidentally charged you. We’ll fix that and credit your account right away.”

“Hmm? You still have those charges plus extra finance charges from the previous month? Well… okay, we can only remove one of them though.”

Reason #3: Potentially Hurt Your Credit

It’s one thing to build credit, it’s another thing to screw up your credit with a large amount of unnecessary accounts open. The entire ordeal can be made even more confusing by the fact that sometimes closing unused accounts may end up hurting your credit score, especially if you carry large balances.

It’s very simple. Don’t have more credit cards than you have fingers. A small discount at some retail store isn’t worth the amounts you’ll end up paying when you have trouble obtaining favorable mortgage rates in the future.

Reason #4: Low Benefits and High Fees

The benefits are usually stupid. Congratulations! You’ve spent $1,000 at Banana Republic. Here’s a $10 gift card! Oh, there’s a minimum purchase of $100.

But while the benefits are few and far in between, the penalty rates and fees are plenty.  These fees are usually higher than many regular bank issued credit card, even when compare to non-store branded sub-prime credit cards. If you stay vigilant, you may be able to avoid the fees, but using a credit card shouldn’t require mass paranoia — just a small dose of healthy suspicion.

Reason #5: Sparse Acceptance Locations

Some of these credit cards are store-only credit cards. If you don’t see a VISA, MasterCard, or a Discover logo like the Walmart card pictured above, you won’t be able to make purchases with the card at other locations. Not a big deal if you’re a frequent shopper at these specific stores, but when combined with all the other reasons above, this reduces the value and utility of the store credit card by quite a bit.  There’s little reason to make purchases with a credit card that can potentially give you so much trouble, especially when you have other options.

Alternatives to Store-Branded Cards

A lot of people seem to suggest store cards to build credit with, due to their general ‘no credit’ and ‘bad credit’ friendliness. In my opinion, they’re only to be used as a last resort in rebuilding credit.

If you have no credit because you’re a student, there are many student credit cards available from national institutions such as Citibank or Bank of America. The Citi mtvU Visa Card, despite being associated with the now-crappy music channel, is actually a pretty good pick for many college students.

If you have bad credit and want to shape up, try local credit unions or check out Patelco Credit Union’s Visa & MasterCard. It has been noted by others with bad credit that you should try applying by phone with Patelco to increase your chances of approval. You can also check with your local community bank or credit union to see if they offer secured credit cards.

If you’re simply looking for some rewards from your purchases — unless you’re a frequent shopper at the store — you’re better off with a regular cash-back card like the Discover More Cashback Card.  Cold hard cash means you’re not limited to spending your reward or cash back at one specific store.

Having said all that, the next time the cashier ask you if you would like to sign up for a store credit card, politely tell them “No thanks, I don’t think it’s a good idea to open a line of unnecessary credit without due research, especially since it may potentially jeopardize my credit.”

If you don’t, you may find yourself being stared at intently by a weirdo from the next check-out isle, with his lips slowly moving and seemingly whispering, “No… don’t do it.”