The Hidden Dangers of Retail Credit Cards

You’ve filled your cart with the perfect gifts, and as you’re finally checking out, the cashier leans in with a tempting offer:

“Would you like to save 20 percent today by opening a store credit card?”

The promise of immediate savings can make signing up feel like a quick win in the moment. However, behind that holiday sparkle often lies a tangle of fine print featuring some high interest rates, limited rewards and deferred-interest promotions that might cost you more than you saved at the register.

Before you sign up for a retail credit card, you might want to take a closer look at how these offers really work. In most cases, a traditional credit card from a trusted financial institution may be the smarter choice in the long run.

How Retailers Market Their Cards

For retailers, the holidays are their busiest, most profitable time of year. So, they put their credit card promotions front and center. Store employees are often incentivized to sign customers up on the spot. That’s why the offer comes when your wallet is open and your decision-making energy is running low.

When shoppers are juggling long lists, limited budgets and the pressure to find the perfect gifts, the offer of an instant discount can seem like relief. The marketing terms are designed to sound enticing, too:

• One-time discounts on your current purchase can pare down the grand total.
• Rewards programs offer discounts or special programs for store-specific items.
• No-interest-for-so-many-months deals give you a period to pay off your total interest-free.

This last benefit can be especially tricky. Many of these promotions use deferred interest. If you pay off the entire total within the promotional period, you will be able to avoid interest. However, if you don’t pay off the entire balance by the end of the promotional period, you may be charged interest on the original purchase amount, not just whatever is left over.

These tactics work because they tap into the excitement of giving, the desire to save and the pressure to get your shopping done. Once the holidays are over and the decorations come down, however, the reality of lingering high-interest balances and limited card benefits can hit hard.

Downsides You Don’t See

When you’re standing at the register, you don’t have the time to explore potential drawbacks of opening a store card account. Behind the quick savings, store cards can end up costing you more than they save simply because of what they are and how they are structured:

• High Interest Rates. Retail cards can carry annual percentage rates well above those of traditional credit cards. Often, it’s 25 percent or more. A Consumer Financial Protection Bureau survey found that "90 percent of retail cards reported a maximum APR above 30 percent." In addition, stores typically charge everyone the same rate regardless of creditworthiness.
• Limited Use. Many store cards can be used only at that specific retailer or within a small family of affiliated brands. That lack of versatility can make managing purchases and building credit in a way that benefits you long-term more difficult. You’ve opened another credit account, but its usage is restricted.
• Deferred Interest Traps. The promise of no interest for six months sounds helpful, but many retailers rely on deferred interest. If something happens and you can’t pay the entire balance by the promotional deadline, the store card may charge interest retroactively on the full purchase amount.
• Low Credit Limits, High Utilization. Retail store cards often set lower, more conservative credit limits than standard credit cards do. When you open a store card account, you typically aren’t increasing your available credit very much. However, carrying even a modest balance on that credit limit can affect your credit utilization ratio, which in turn can lower your credit score over time.
• Account Management Confusion. Having multiple store accounts means adding additional billing cycles and due dates. Juggling multiple account balances makes it easier to miss a payment or forget a due date, leading to late fees and potential damage to your credit history.
• Forgotten Accounts After Moves or Changes. It’s easy to open a store card for a one-time promotion and then lose track of it, especially if you move or change contact information. A small unpaid balance or unreceived statement can linger unnoticed, creating potential credit issues later.
• Closing the Account. Some shoppers want the deal but plan to close the account as soon as the promotion ends. While that might feel responsible, closing a credit card can hurt your credit score by shortening your average account age and reducing your total available credit.

Get a Credit Card That Works for You

Retailers know that shoppers have choices beyond their store cards. That’s why they offer the initial discount. However, cards from trusted financial institutions are designed to give you rewards and credit that work for your long-term financial health.

• Lower, More Transparent Rates. Credit unions are not-for-profit organizations and often have lower APRs than either retail store cards or many traditional bank cards. That means that if you ever do have to carry a balance, you’ll pay less interest over time. Plus, credit unions are typically more transparent about fees and rates, so you won’t have to worry about costly surprises.
• No Gimmicks or Deferred Interest. Unlike store promotions that rely on deferred interest or fine print, credit union cards provide clear terms from the start. You won’t suddenly owe months of back interest if you miss a payment, and there are no hidden penalties designed to catch you off guard.
• Rewards That Go Anywhere. Instead of being limited to one store or a small family of brands, credit union-issued credit cards often let you earn points, miles or cash back on purchases wherever you shop. This flexibility turns every purchase into an opportunity to earn rewards that benefit you.
• Local Member-First Service. Credit unions exist to serve their members. That means when you call with a question or need help managing your account, you’re speaking with someone who wants to help you succeed financially. With a credit union, you get personalized service that you typically just don’t get with big retail programs.

Practical Options You Can Rely On

La Capitol Federal Credit Union offers three different credit cards that combine the advantages of credit union accounts with features designed for everyday spending. These cards give you flexibility, rewards and straightforward terms to help make the accounts work best for you.

• La Capitol’s Cash Back Visa Signature card lets you earn one percent cash back with every swipe of the card, and APRs range from 14.25 percent to 18.00 percent. Even better, you can earn up to $150 when you use your card within the first 90 days and make $1,500 in qualifying purchases. Plus, you get a promotional 2.99 percent APR on new purchases and any balance transfers made within the first 180 days of opening your account.
• La Capitol’s Prime Plus Visa card offers even lower APRs—as low as 12.25 percent —allowing you to make purchases that you may need to pay off over time.
• La Capitol’s Rewards Visa card gives you points for each dollar spent that you could use for shopping or rental cars, for example. Like the Cash Back Visa Signature card, APRs on the Rewards Visa are low, ranging from 14.25 percent to 18.00 percent.

The Right Card for the Holidays (and Year-Round)

The right credit card should make your life easier, not more expensive. With La Capitol’s low rates, straightforward terms, valuable rewards and options to earn, you’ll find a better way to manage your credit both during the holidays and every day after.

To learn more or apply for a La Capitol credit card, visit us online and discover how a smarter card can help you sync your holiday season with your financial goals this year.