Consumers are inundated with offers for new credit cards, especially those associated with a department store. According to Nerd Wallet, there are few - if any - reasons to sign up for a store associated or closed-loop card. Bank or debit cards are offered when opening a checking account, and are the wiser choice for the average consumer looking for long-term benefits when spending.
The one-time-only benefit
The common hook for signing up for a store card is the initial discount. As reported by Magnify Money, an initial store card sign-up can net a customer as much as 30 percent off their same day purchase, with an additional 10 percent off any additional purchases. Signing up for the card is always easy, as most retailers grant usage for customers with FICO scores as low as 550.
However, the approval comes with exceedingly high interest rates. A Nerd Wallet report showed that while the APR on a credit card is around 18 percent, the interest rate for the common store card can be as high as 26 percent. The high APR is a consequence of banks promising a high approval rate to retailers, explained Magnify.
Unfortunately while a large percentage of Americans are glad for the instant discount associated with a store card during the holiday season, 49 percent of Americans regret their decision to open the card account, according to a Credit.com survey. One in three Americans felt bullied into opening the card in the first place. Survey results found that opening the account led to customers spending more than they intended, negatively impacting their credit score and adding to what many considered was already too much debt.
The initial savings on an average store card are beneficial, but the follow-up discounts are typically within range of coupons or discounts offered via a department store newsletter. Deferred interest is a common tag as well for store cards, offering 0 percent interest for an extended period. However if there is a debt on that card once the 0 percent interest time is over, customers are charged a lump sum of interest retroactively dating from date of sign-up, as reported by Nerd Wallet.
A bank card's flexibility
Credit cards provided by banks have more flexibility than cards offered by retailers. In some instances, store issued credit cards are restricted to use only in that specific store. This closed loop makes it more difficult to accumulate rewards.
Bank credit cards are not restricted, and you can earn rewards no matter where you shop or what you buy. By sticking to retailer cards, you're limiting the areas you can shop at, which can make life a bit more difficult if you're looking for specific merchandise.
If you sign up for a credit card from a bank, you can also rest easy knowing that the interest rate will be at a modest level. According to NerdWallet, a balance of $200 on a store credit can accumulate as much as $30 in interest per year due to the high APR. Store credit cards typically have APRs somewhere between 25 to 30 percent.
As reported by Bankrate, a store card promotes needless spending with countless offers sent to the consumer. A bank card gives customers access to cash via ATM, a great way to keep overspenders from accruing too much debt and holding tight the reins of their budget.
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