Store credit cards make more, cost more

A news item from the Wall Street Journal confirms what we’ve found – that store cards (like from Target, Kohl’s, or Best Buy) cost more than a plain old credit card:

A chunk of the customer base for these cards is made up of low-income households and less credit-worthy borrowers. As a result, these cards typically carry higher interest rates and lower credit lines than general-purpose cards.

Store label card issuers also make more off these cards.

“Issuers of retail credit cards make $16 to $18 of interest and fee income on every $100 loaned out, before subtracting expenses,” the Journal says. “Earnings on general-purpose cards typically are $14 to $15 per $100 loaned.”

That one or two dollar difference may not seem like a lot, but multiply it by thousand dollar balances and the millions of people who have store cards, and it adds up to a lot of profit for credit card issuers.

Customers think that by signing up for the store card and getting 10% off a purchase (for instance), they’re getting a good deal. Over the long term, however, these store brand cards can cost you more.

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