Posts Tagged 'store card'

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.

Store cards hurt more than help

With all the Christmas shopping, you might be tempted to save 10 or 15% on your store purchases by signing up for a store credit card.

The drawbacks, as the New York Times puts it, may outweight that one-time benefit:

As one expert put it, if you strip away the store discounts and brand names that come with these cards, many are essentially the same products marketed to subprime borrowers, or individuals with tarnished or fairly new credit histories. Would you really choose a card with an interest rate of say, 25 percent, or about 9 percentage points higher on average than many other credit cards?

You may save on that initial purchase, but gotchas like a higher interest rate, a lower credit score, or spiking rates after a promotion are some of the harmful effects of signing up for store-brand cards.

To learn more about how big bank credit cards can “get ya,” visit our Operation: Your Best Interest site.


American 1 Federal Credit Union