5 things to weigh before opening a store-branded credit card

Don’t be shocked if you’re hit with all sorts of deals to tempt you into opening a store-branded credit card this holiday shopping season.
Shopping at an Old Navy store a few weeks ago, I was offered 30% off my first purchase if I opened a credit card; 30% off? It’s quite tempting, and the retailers know it, especially if you’re aiming to spend less this holiday season.
Nearly three out of 10 consumers indicated that they are at least somewhat likely to apply for a store credit card this holiday shopping season, according to an online survey by LendingTree, an online loan marketplace. LendingTree commissioned QuestionPro to survey 2,040 U.S. consumers ages 18 to 78 from Sept. 13 to Sept. 17.
More than half of consumers who applied for their most recent store card did so for the discounts or rewards, according to the survey.
Retailers offering big discounts or coupons on future purchases if you opened their credit cards include: JCPenney giving 35% off on select purchases when you open that credit card but only 20% off some items; trendy clothing store Torrid, 40% off the first purchase; Lowe’s a 20% off coupon through Jan. 31, 2025, for a maximum of up to $100 off and exclusions apply. Kohl’s even offered 40% off online, subject to credit approval, in November, for opening that retailer’s credit card.
Earn rewards on your spending: See the best credit cards
Target — which introduced the Target Circle Card earlier in 2024 — is offering shoppers $50 off on a future qualifying purchase of $50 of more when they’re approved for a Target Circle Credit or Debit Card. The coupon will be mailed to cardholders with their Target Circle Card. Shoppers will have at least 30 days to redeem the coupon. You’re going to have to upload that coupon to the Target app.
‘Buy now, pay later’:Worth the risk? The hidden details that shoppers should know
Many of these credit cards might work out just fine, especially if you pay bills off in full and don’t want paper statements. But we’re still talking about some hidden fees, higher-than-you’d-ever-imagine interest rates and some pretty key drawbacks.
Borrowing on a retail-branded credit card is hardly a bargain.
The average rate on retail cards was 30.45% — up from 28.93% a year ago — based on an annual survey done in September by Bankrate.com. And that’s up from an average of 24.35% in 2021.
We’re talking about rates on retail credit cards that are substantially higher than of an average credit card rate of around 20.35% as of Nov. 13, according to Bankrate.com.
Some retail credit card rates were 34.99% or nearly 35% in early August, according to the Bankrate.com survey. But some rates came down a notch after the Federal Reserve’s first rate cut of half of a percentage point on Sept. 18. The Fed cut rates a second time, by a quarter-point, on Nov. 7 and that will bring down variable rates a tad, too.
Reviewing some rates online in November, I spotted that the myWalgreens Credit Card, the Old Navy Navyist Rewards MasterCard, the QVC Card, the Althea Rewards MasterCard, all listed a variable annual rate of 34.49% as of October.
The Target Circle Card — which offers a 5% discount on many purchases at Target in-store and online with some restrictions — listed an APY of 29.45% as of late October.
“If you ever plan to carry a balance, they’re not the best fit for you,” said Ted Rossman, senior industry analyst for Bankrate.com.
Toy shopping:How to avoid cute but dangerous toys when ordering online during the holidays
Many young consumers jump at the chance to sign up for these cards because they like the sound of the discount, and frankly, retail cards typically haven’t been hard to get.
“They’re not as selective about credit quality,” Rossman said.
Unfortunately, you won’t be rewarded with a lower rate on a retailer credit card, even if you have a stellar credit score. The LendingTree report noted that the vast majority of consumers with these retailer cards got the same high rate, whether they had a credit score of 800 credit or 500.
Interest rates on many retail cards could go down slightly in 2025, but we’re not talking about dramatic drops as the Federal Reserve moves to lower short-term interest rates. Remember, too, that rates on other credit cards would trend down too because most credit cards have variable rates that fluctuate when the Fed raises or cuts interest rates.
It sounds great — especially if you’re buying an engagement ring — to take advantage of a 0% promotion on a store credit card. But many times, you’re dealing with deferred interest.
The special 0% financing offer only lasts six months on a smaller purchase of $300 to $749 at Zales, for example. But the offer can last 36 months on a minimum purchase of $1,500 or more. Here’s the real snag: “Interest will be charged to your account from the purchase date if the promotional plan balance is not paid in full within the promotional period.”
“That means if you don’t pay the entire amount by the time the clock runs out,” Rossman said, “then they go back and charge you retroactively for all of the interest that would have accumulated back to the start of the promotion.”
It can add up to a great deal of money, more than you might anticipate.
Shopping scams:3 holiday scams, including a fake TSA PreCheck, that could end up stealing your money
Sometimes, consumers can be confused by these offers because with many 0% limited promotions on a regular bank issued credit card, Rossman said, you’d only be charged interest on whatever amount is left after the 0% term expires. It’s not retroactive.
Often, you’re required to make minimum payments during that 0% promotional period, but those minimum payments won’t come close to covering your entire bill.
The Zales promotion online notes for purchases of $1,500 or more that you’d be charged 16.99% APR for 36 months. But after that, you’d be hit by the purchase APR of 35.99%. Interest will be charged to your account at the reduced APR from the purchase date through the end of the promotional period. After the promotional plan expiration date, the purchase APR will apply.
Which can make it super hard to figure out how much you’d actually owe, if you didn’t pay it off.
Say you bought a $7,000 engagement ring. You could pay it off in 28 months by making payments of $250 a month, not taking into account taxes, and you wouldn’t owe any money or be charged interest when the promotional period ends.
But say you didn’t make all those payments and still ended up owing $3,000 on that $7,000 ring in three years.
You could end up with $3,443 for the retroactive interest — just interest — in this example and owe $6,443 after three years, according to calculations by Bankrate.com’s Rossman.
Going forward, he said, a separate interest charge with an APY of 35.99% on the remaining balance would quickly drive up your interest costs at 35.99%. “The timing and interest charges will depend on how quickly it’s paid down,” Rossman said.
Several store-branded credit cards now carry extra fees of $2 to $3 a month if you receive a paper statement.
The women’s clothing store J. Jill, for example, has a new $2.99 monthly fee if you do not agree to paperless statements. The only way to avoid the fee is set your account preference to paperless.
The TJX Rewards Card — which can be used at T.J. Maxx, HomeGoods, Marshalls and some other retailers in that chain — charges $1.99 a month when you receive a paper statement. The fee would apply in any billing cycle where your balance is more than $2.50 and you are sent a monthly billing statement in paper form, even if you also receive a statement in electronic form.
Synchrony notified J. Crew Credit Card customers that it will charge $1.99 a month each month that they’re send a paper billing statement, beginning in November. Again, that fee can be triggered when the balance is more than $2.50 in a billing cycle.
Make sure you know the monthly fees you could face if you don’t go completely paperless.
Think about it. How often do you even shop at this store?
Some types of store credit cards can be easily used at any store, restaurant anywhere else that takes credit cards. But many times, you’re only able to use a retail-branded card at a specific retailer.
“If it has a Visa, Mastercard, American Express or Discover logo on it,” LendingTree notes, “it can likely be used elsewhere. If it doesn’t, it’s likely only to be used with that retailer and its family of stores.”
If you’re loyal to the store — and you pay the bills before interest hits — it might not be a bad idea. Some cards also offer free shipping or extra rebates on purchases.
“Getting 5% back with your Amazon or Target or Best Buy card is a good deal if you shop there a lot and don’t owe interest,” Rossman said. That type of reward is often better than what a general-purpose credit card would offer. But again, some the best rewards only apply to qualifying purchases at that specific store.
If you’re planning to take out a car loan or apply for a mortgage, don’t go out and “save” a lot of money by opening up new credit cards.
“Opening new cards during the holidays is like using your credit report as a 10% off coupon,” said John Ulzheimer, an author and expert on credit reporting and credit scoring. Ulzheimer previously worked at FICO and Equifax.
New credit card inquiries can lower your scores slightly in some cases, he said, but the real problem is that newly opened accounts will be added to your credit reports and end up lowering your average age of “trade,” which is a metric used in all credit scoring models.
Credit scores take into account the average time that your credit accounts have been open — and a newer card or several new cards will bring down that average. Credit card experts note consumers with a higher average, consisting of many older lines of credit, may be less of a financial risk.
“If your scores are already extremely high, say 780 or higher, then you’ll probably be fine with opening a new card during the holidays in advance of a larger auto or home loan sometime in early 2025,” Ulzheimer said.
“But is it really worth 10% off some shoes to take that chance?” he asked. “I’d suggest using an existing card, not worrying about the tiny discount, and keeping your credit scores in the best shape possible.”
Contact personal finance columnist Susan Tompor: [email protected]. Follow her on X (Twitter) @tompor.