Retail credit cards come fully equipped with financial pros and cons for U.S. consumers.
On the upside, retail cards (also called store credit cards) are certainly worth a look if you're a younger individual looking to create a credit history and to build credit health. Retail credit cards often come with decent perks, like store discounts and usage rewards, too.
On the downside, retail credit cards often come with some of the highest interest rates in the credit card industry. They also often come with low credit limits and, let's face it—they represent another spending temptation many consumers don't need in their lives.
A big part of maximizing retail credit cards is educating yourself and knowing their strengths, weaknesses and usage potential. Start that process with the facts in mind about retail credit cards:
1. Double the Interest Rate
Data from the Federal Reserve shows the average credit card rate currently stands at between 12%-and-14%. Yet the average retail credit card can be twice as much as the average traditional credit card. Read more about credit card APRs here.
2. Retailers Will Go to Great Lengths to Get You Using Their Store Credit Card
Stores want you to use their retail credit cards—badly. For example, Macy's has offered a $100 shopping spree if you sign up for their card. Meanwhile, Home Depot offers new card users a full year of hassle-free purchase returns. Know going in, though, that those card companies are more than happy to trade those perks for your overspending on their store card.
3. Store Cards Can Hurt Your Credit Score
Retail credit cards, like any other type of credit card, can have both positive and negative impacts on the cardholder's credit score. However, since credit limits on retail cards are often relatively low, your credit score could be hurt because you are more likely to have a higher credit utilization rate. That means you're using a higher percentage of your available credit.
4. Store Credit Cards Are Still Popular
According to Experian's 2017 State of Credit Report, average retail credit card debt is up year over year approximately 4% from $1,768 to $1,841. The average consumer has 2.5 store cards and retail spending hit an all-time high in 2017.
5. If a Retailer Goes Out of Business, You Still Owe Your Credit Card Debt
With multiple brand name U.S. retailers collapsing, including Toys R Us, Bon-Ton, and Sports Authority, retail cardholders my think they're card debt is going away, too. That's not so. The card issuer isn't the store that folded—it's the bank or other financial institution that issued the card which holds the loan—and they'll want their debt paid off.
6. Retailers Make a Bundle of Cash on Store Card Usage
According to The New York Times and Morgan Stanley, 39% of $1.9 billion in profits for Macy's in 2016 came from its store card purchases. Kohl's had a similar number for the same time frame—at 35%. Meanwhile, online retail king Amazon only earned 3% of its overall revenues from its retail card in 2016.
7. Retail Cards Are Popular in San Antonio
San Antonio, TX. had the highest retail credit card debt of any U.S. in 2017, according to data from Experian. It averages $1,590 per person there. Corpus Christi, TX. and Anchorage, AK. rank second and third with $2,311 and $2,196 average retail credit card debt per person.
8. 0% Financing Offers
It can be enticing to get a 0% store credit card financing offers. Watch out, though—after the typical one-year grace period, if you owe even $1 on your card, you can get slammed with the previous year's full amount of interest charges.
9. Costco Is #1
The Costco Anywhere Visa Card could be the top retail credit card in the U.S. The card has no annual fee, 1-to-4% cash back rewards, and a relatively low annual interest rate of 16.74% compared to other retail cards. While there are many retail cards to choose from, choose one that has the same qualities and benefits as the Costco card.
10. the Easiest Store Card to Get with Bad Credit
If you're struggling with low credit scores, retail credit cards may be one of your best bets, credit-wise. The easiest card to get? The Kohl's charge card is green-lit for card applicants with credit scores as low as 570. The card comes with no annual fee and a $5 rewards cash deal for every 100 points earned on store purchases.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.