Borrowing

Store credit card rates average 26% — why it can still make sense to use one

Twenty/20

Before you head to the checkout counter at your favorite store, you may want to think about the question the clerk will almost certainly ask: "Do you want to apply for the store's credit card?"

Retail credit cards are popular: 66% of U.S. adults have at least one, according to a new Creditcards.com survey of 2,400 adults.

But they can also be expensive if you carry a balance. While the Federal Reserve has cut interest rates twice this year, store credit card rates have been increasing. The average APR for all retail store cards is 26.01%, up from 25.64% a year ago, according to CreditCards.com. Some of the priciest store cards have rates topping 30%.

To compare, the national average credit rate is 17.35%.

Still, there are instances when, if used responsibly, having a retail rewards card can pay off:

1. You're making a big purchase

If you're in the market for a big-ticket item like a new appliance, charging the purchase to a retail credit card can be a smart way to save. Sign-up discounts can cut the price, or you may be able to take advantage of a low- or no-interest financing deal to help you spread out the cost of the purchase.

"It doesn't make sense to save 10% on a pair of jeans, but if you can save 10% on a refrigerator, or your holiday shopping, that initial sign-up bonus could be worth it for those more sizable purchases," says Ted Rossman, industry analyst at Creditcards.com.

Make sure you read the fine print on financing offers, however. Some cards offer so-called deferred-interest deals, meaning if you have any balance remaining after the promotional period, you'll owe back interest on the entire purchase.

It doesn't make sense to save 10% on a pair of jeans, but if you can save 10% on a refrigerator, or your holiday shopping, that initial sign-up bonus could be worth it for those more sizable purchases.
Ted Rossman
Industry analyst at Creditcards.com

2. You want to save at stores you frequent

A majority of consumers who apply for a store credit card do so to save money, according to the CreditCards.com poll.

The value of rewards depends on your personal spending habits, but Rossman says that if you're loyal to a particular store, having its credit card could help you maximize your savings.

"5% back is really what I see as the best ongoing reward, and a bunch of retailers have it on their cards," says Rossman, pointing to examples including Amazon, which gives 5% back to cardholders who have a Prime membership, and Target, which offers cardholders a 5% discount at checkout. "That's actually better than you can get on a general-purpose card."

VIDEO2:4402:44
How to successfully use a cash-back credit card

Video by Mariam Abdallah

3. You want to build your credit

Store cards can be a helpful tool to build credit and improve your credit score, Rossman suggests. Stores benefit from your purchases, so they often make it easier to get approved, he says. But that's also why card rates tend to be higher, because the lender is taking more risk. You need to be even more careful to pay off your balance in full each month.

"Store cards are usually easier to get, and they can be useful to build or rebuild your credit," says Rossman. "If you're starting out building your credit ... those might actually be solid starter cards for you."

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