Store credit cards often carry high interest rates

Published 9:00 pm Saturday, September 2, 2006

Question: Are store credit cards worth signing up for, and how do I keep from getting so overwhelmed by it all?

Answer: It seems that every time shoppers go to a store, they get bombarded by offers to sign up for a store credit card, and it can be so confusing.

For customers, store credit cards offer extra savings and provide a heads up on special sales coming up. They can also be an easy way for shoppers to establish credit history. But they need to be used wisely, experts warn.

Above all, if consumers can’t pay off their balances in full, it’s best to avoid store cards since interest charges are higher those of bank cards. Greg McBride, senior financial analyst at bankrate.com, said a typical store card is now charging interest of 19.8 percent, compared to a bank card, which currently charges around 13.5 percent.

Another issue to keep in mind is that taking out too many cards at once can actually hurt one’s credit score.

Here are some tips on how to manage the store credit card issue:

* Only sign up for store cards that give the best deals or immediate savings. For example, if a customer is buying a $2,000 couch, and can get 10 percent off upon signing up for a card, then he or she should consider the offer, said Mallory Duncan, senior vice president and general counsel at the National Retail Federation.

* Don’t sign up for a slew of store credit cards, because such increased line of credit will hurt your credit rating.

* Examine the policies of the card. That means looking at the grace period – from the end of the billing cycle to when the payment is due. McBride also notes that you should also look at the default policy – if customers miss one payment, the question is, is the interest rate going to climb up to 20 percent?