Read This Before Using A Retail Credit Card

Now that the Christmas shopping season is upon us you will no doubt be solicited to open up a retail credit card account. A retail credit card account is another way of saying a store credit card. They are cards that can only be used exclusively for making purchases in that particular store, or more likely, chain of stores. Examples of retail credit cards include Macy’s, Kohl’s, J.C. Penney’s , etc.

What the stores like to do to entice their customers to open a charge account with them is to offer a discount on their goods and services. If for instance you were shopping for a new recliner at Sears that costs $500, Sears may offer you a 10% discount if you purchase it using your Sears charge card. Another common practice is to offer a discount on your entire purchase if you open up a credit card account with that particular merchant.

These types of enticements are nothing new in the world of commerce. It’s a laughable cliche that every new bank customer gets a free toaster when they open up a new account. I remember, while shopping in the local mall a few years back, there was a woman offering free umbrellas to anyone that would complete a credit card application.

But here is something the stores do not want you to know - retail credit cards typically come with a much higher interest rate than general purpose credit cards. The average APR on a general purpose credit card issued by a bank or credit card company is currently 14.39%. That is quite a bit lower than the avearge department store credit card interest rate which hovers right around the 23% APR range.

Of course you may be tempted to use the store credit to get the discount and then pay it off in full before any interest is charged. Not a bad deal but keep this in mind - every time you get a new line of credit such as a credit card it could have a negative effect on your credit rating. Having too many credit cards can signal financial institutions that you are a credit risk. That may or may not be fair but that’s the way it works.

Note that I said it could have a negative effect on your credit rating. It’s not an automatic. Just to be on the safe side I would advise that you do not open up any new credit card accounts prior to applying for a mortgage or car loan. Lenders typically do not like to see too many open lines of credit from perspective borrowers. That is especially true in the current credit-strapped economy.