TAMPA — We’ve all heard the pitch at the cash register: “Would you like to receive 10 percent off your entire purchase today?”
Of course we would. But if that discount requires shoppers to open a store credit card account on the spot, personal finance advisers urge those shoppers to think twice.
The consumer advice website NerdWallet is the latest to raise the caution flag, posting a study indicating that retail store card users pay higher interest rates and miss out on valuable rewards.
They could also hurt their credit scores.
Nonetheless, consumers are more interested in shopping with store credit cards than with traditional cards, NerdWallet said, with Florida ranking 15th in the nation in an index of searches for store credit card offers.
“Don’t do it. Definitely don’t do it,” said Courtney Miller, a data analyst for San Francisco-based NerdWallet. “When you think about what that 10 percent is in relation to your purchase, even if it’s a big one, it could wind up costing you a lot more down the road. You shouldn’t get a credit card because there’s a sign-up bonus. You really should look to see what is the best card for you.”
NerdWallet assessed Americans’ interest through estimated Google search volume in store cards from Target, Amazon and Wal-Mart and traditional rewards and cash-back cards.
The loyalty to store cards comes despite those cards’ higher interest rates. Financial network CNBC reports that the average store credit card carried a 23.2 percent interest rate in 2014; the national average for all cards was 15 percent.
CreditCards.com reports that the Zales jewelry chain topped its survey of store card rates at 28.99 percent.
NerdWallet used the example of a shopper who uses a Wal-Mart store card with a 22.9 percent interest rate to charge $805 worth of merchandise, which the National Retail Federation says is the likely average spending per consumer for the 2015 holiday season.
With a minimum monthly payment of $25, that would cost almost $140 more in interest and take five months longer to pay off than a traditional card with a rate of 18 percent.
Store cards also have low limits — often $500 to $1,000. While that may limit overspending, it also affects a characteristic that is critical to your credit score known as “utilization.”
Hitting a 30 percent debt-to-credit ratio — or charging $300 on that $1,000 maximum store card — puts you at the level that will start impacting your credit score. Utilization makes up 30 percent of that score, according to Bankrate.com.
Meanwhile, every time you apply for a store credit card, it triggers a hard inquiry on your credit report — which can ding you for as much as 10 to 30 points an application.
Despite those potential drawbacks, Floridians and others continue to look to store cards.
Miller suggested that’s because consumers know their stores, and the Target or Wal-Mart brand might be “more top of mind” than those of Discover or American Express.
Greg McBride, chief financial analyst at Bankrate.com, also urged caution when considering store credit cards but wouldn’t dismiss them outright.
“Whether it’s a good idea or a bad idea depends on who you see when you look in the mirror,” McBride said. “For consumers who are determined about paying off their credit card balance in full and don’t overspend, it can be a pretty good deal. For people who have trouble living within their means or piling up credit card debt, the savings may be very little compared to charges they ultimately might incur.”
Besides the initial discount, some store cards do offer pretty significant rewards, including continuing discounts, exclusive shopping days, flash deals, returns without receipts, free shipping and gift certificates.
The cards can also help consumers build or rebuild a credit history — retail store card issuers are much more lenient in approvals, and those with low or no credit score can build a reputation using them wisely.
“There are very few things in the world of personal finance that are a blanket ‘Don’t do it,’ ” said McBride. “With the vast majority of them, they’re good for some people, but not good for everybody. It’s like a steak knife — in the hands of a chef, it’s a great tool. But you wouldn’t give one to a 6-year-old.”