Department Store Credit Cards

APR’s on department store/retail credit cards are higher than any other class of credit products because they are typically defined as the riskiest assets in regards to unsecured lines of credits. Meaning, borrowers are more likely to default on these debt obligations than any other type of debt.

What’s the Difference Between a Department Store Card and a Regular Credit Card?

The main difference between these credit cards and conventional credit cards are where you can utilize the credit cards. Many retail store cards are refined to use in that particular location, DSNB Macy’s, for example. This isn’t always the case. However, if it is, in order for opening that line of credit to be “worth it” you really need to shop at that retail location quite religiously.

Are These Cards Good for a Specific Type of Person?

I don’t think personality or “type of person” plays much into this. Again, for it to be worth opening a department store card, you really need to visit that retail outlet quite frequently. Otherwise, it is very likely that the credit card will just collect dust in your wallet. Otherwise, if you are making a big ticket purchase it may be worth considering in order to get a 20% discount on that big ticket item.

Drawbacks

Most of these credit card companies are just banking on consumers to open a card for an extremely short-term benefit (like 20% off your entire purchase at Macy’s, etc.) in the hopes that consumers use the card more frequently and get charged interest down the road. These cards are most often opened during the holiday season as well so odds are some consumers will see the benefit to opening a retail card and make a mistake (by paying the outrageous APRs) somewhere down the line.

Watch out for deferred interest! The interest is only being deferred—so you are still liable to pay it. Some promotional 0% APR offers are okay but make sure you read the fine print! Some cards may require you to pay retroactive interest if you do not pay the balance in full by the end of the promotional period. This can occur on any credit card offering (not just retail cards).

Use of Credit Cards

Credit cards are only meant to be used a revolving line of credit in the short term. I think many consumers don’t pay attention to the word revolving here! Meaning you pay the card off at the end of the monthly (ideally stay within the grace period) and pay no interest at all. If you are disciplined and pay you bill at the end of each month, the ARP on any given credit card really becomes irrelevant. In that scenario you should go for a card that is best for how you spend and will maximize your rewards.

When you get a retail credit card, make sure you are not getting a 20% discount on your purchase (even if it’s a substantial one) just to pay 26% APR every month. This really defeats the purpose and if you actually do the math you will see that the items you bought are actually costing you much more than the retail price you paid—due to compounding daily interest.

Retailers offer a varying array of rewards. The best rewards will likely depend on your scenario and spending habits. Whatever you chose, do not forget that your rewards mean nothing and are essentially negated if you are paying excessive interest.