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What to Know About Retail Credit Cards This Holiday Season

Shoppers are building up their balances on retail credit cards, a type of card issued by a store that can often only be used there. From Q2 of 2015 to Q2 of 2019, retail credit card balances grew 7%, according to Experian data.

The holiday season is a natural time to seek out a retail credit card, especially if you plan to do most of your shopping in one place. But retail cards aren't the best choice for everyone. Along with the discounts and perks they provide frequent shoppers, they can also come with high annual percentage rates (APRs) and unclear promotions that could end up costing you.

To help you decide whether a retail credit card might be right for you this holiday season, check out these five tips:

Watch Out for High APRs

The average APR on retail credit cards in 2018 was 26.4%, compared with 20.3% for general credit cards, according to the Consumer Financial Protection Bureau. That potential for high interest charges make it extra important that you pay off your balance by the end of every billing cycle.

During the holidays, when you're shopping for multiple friends and family members in a short period of time, that can be difficult. Consider adding an amount to your savings account each month earmarked for gifts—even just $25 a month saved over a year can help once the holiday season begins.

Whatever you've set aside can help pay off all, or a significant portion, of your credit card charges. Otherwise, you'll be subject to accrued interest, which will make your purchases even more expensive.

Deferred-Interest Promotions Aren't Always a Great Deal

Some retail credit cards give you the option to pay off a purchase over six to 12 months without paying interest. But in many cases, the fine print states that if you don't pay the full amount within that time period, you'll be retroactively charged interest from the date you bought the item.

If you decide to take advantage of a deferred-interest promotion, make sure you understand all the terms you're accepting. Make a plan to pay off the balance of your purchase before the promotional period ends; and if you're not sure you can do so, skip buying it.

Ongoing Discounts Can Mean Big Savings

If you use a store credit card responsibly, at a retailer you frequent, you could enjoy discounts that will save you over time. That perk is even more enticing if the card is accepted at multiple stores you frequent.

The TJX Rewards credit card, for instance, offers generous rewards for shopping at T.J. Maxx, HomeGoods, Marshalls, Sierra Trading Post and Homesense, plus lower-rate rewards at other stores too. You can redeem the points you earn for gift cards at T.J. Maxx and its associated stores.

The Target RedCard offers a 5% discount on every in-store and online Target purchase, which can be valuable if you shop for household items there in addition to gifts.

Retail Cards May Be Easier to Get

If you want to build credit or use a promotion available at a store to buy holiday gifts, a retail card may be easier to qualify for than a general credit card. They typically don't require credit scores in the excellent range, as premium rewards cards often do.

But retail card credit limits are generally lower, which will affect your credit utilization rate. Credit utilization is the amount of available credit you're using compared to your credit limit. If you reach the top of your credit limit—which isn't difficult to do if it's $500 or less, for instance—your credit score will reflect high credit utilization, and it'll suffer as a result.

A secured credit card, which requires a deposit that usually corresponds to your credit limit, is generally a better bet if your goal is to build credit. But if you can't afford the deposit, getting a retail card can help you demonstrate responsible credit behavior to lenders in the future—as long as you keep your balance low and pay it off each month.

General Credit Cards Are More Flexible

If you can qualify for a non-store credit card, you'll have access to perks that can be especially useful for holiday shopping.

For instance, many general credit cards offer intro bonuses if you spend a certain amount within the first few months of opening the account. If holiday shopping will help you hit that minimum, the bonus could provide, in effect, a discount on your purchases. You can also use credit card issuers' online bonus malls or programs like American Express' Amex Offers to find deals on gifts, and pay for them with credit card rewards you've earned.

If you're not loyal to one store or a partnership of stores, a general credit card that provides cash back could get you discounts on a wider range of items.

The Citi® Double Cash Card, for instance, gets you 2% cash back on every purchase—1% when you buy the item, and 1% when you pay it off—plus 0% APR on purchases for 9 months. Use the card for holiday shopping, and you'll get cash back and pay no interest if you pay off your purchases within that time frame.

The Bottom Line

Retail credit cards are worthwhile in some circumstances—when you'll shop exclusively at a particular store for the holidays, for instance, and you're sure you can pay off your balance each month. But if you want access to a wider range of rewards, a general credit card might be best.

Take a close look at your shopping habits and what you want from a credit card long term, and you'll be more likely to choose the card that's the right fit for you.

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