Retail credit cards are convenient, but have their downsides, too

Most consumers have a regular store in which they like to shop. It might be close to home, or just a store that has merchandise that the consumer likes. Stores like to have regular customers; a solid base of regulars helps keep the lights on. One way that stores have found to keep customers coming back is to offer their own credit cards. Sears, Macy’s and nearly every other department store chain offers their own card. Shoppers are often tempted to apply for these cards when they go to the checkout. The sales clerk will point out that a discount, say 10% or so, is available if the shopper applies for, and uses, the store’s card. The application process usually takes only a minute or two, and if approved, the discount is immediately applied. Sounds easy; but is it a smart move?

Perhaps, and perhaps not. It all depends on your own financial and shopping habits. Here are some examples of the pros and cons of having a department store credit card:

PROS

• You shop there regularly, so why not have an easier way to pay for it?
• The discount could be substantial if you are buying an expensive item. It may not be worthwhile if you are buying a set of towels, but it might be well worth your while if you are buying a big screen television
• You may get occasional special offers that are only available to credit card holders. These offers could add up to a lot of savings over time if you are a regular shopper.

CONS

• The interest rate will almost certainly be higher than for other credit cards, such as a Visa or Discover card. This is not a problem if you pay your bill in full each month, but if you carry a balance, it could get very expensive very quickly.
• There may be annual fees. You should ask before applying for the account.
• The point of sale discount may not be that big of a deal if you are buying a small or inexpensive item. Do you really need another credit card to save 10% on a couple of DVDs?
• Just applying for the account will put a dent in your credit score. This may not be important, but if you plan to apply for a loan soon, the temporary dip in your score could mean the difference between obtaining a favorable loan and obtaining one with a higher interest rate. You will need to weigh out these options before you apply for the account.

Many Americans have a department store account. At one time, the Sears card was perhaps the most widely held card in the country. If you shop at a store regularly, it may be a good idea to have an account with your favorite store. Just make sure that you are aware of the downside to applying for one. If the terms suit you and you can pay your bills on time, this account may be a useful financial tool. If not, then perhaps you should decline the offer.

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