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The Store Credit Cards Worth Having

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Perks Include 15% Off…0% Financing…Free Shipping…More

Store cards—those merchant-branded credit cards offered by many large retailers—can provide some very appealing perks. For instance, new cardholders might receive 15% off their first purchase…5% off all purchases made at the store…0% financing…or special sales or savings not available to other shoppers.

What’s more, many store cards are available even to consumers who have credit scores in the mid-600s, too low to qualify for most credit cards. And using these store cards responsibly can be a way to rebuild a damaged credit score.

But proceed with caution—store cards have major drawbacks, too…

STORE CARD DRAWBACKS

What you need to know about store cards before you apply…

They charge very high interest rates. Store card interest rates often are upward of 25%, higher than rates on most general credit cards. Don’t use store cards if you can’t pay off the balance in full each month.

The cards could lower your credit score, although this hit might not be substantial if you don’t sign up for too many and avoid those that hurt most. See below.

They increase your identity-theft risk. Consumers who sign up for store cards to get a onetime discount often forget that they have these cards in their wallets. They might not notice if one of the store cards goes missing.

The attractive financing plans offered by some store cards might have hidden gotchas. A steep penalty interest rate might apply if repayment terms are not scrupulously followed. This penalty rate might even be retroactively applied to the date of purchase.

They often offer fewer consumer protections than other credit cards. For instance, most general credit card issuers will not hold you liable for any unauthorized charges, but store cards might not provide this protection.

THE BEST STORE CARDS

Despite the potential drawbacks listed above, the perks offered by the best store cards can make them worth getting—if you shop regularly at the store issuing the card or you are making an especially large purchase.

Many of the best store cards are actually “co-branded” cards offered in conjunction with a major card issuer, such as Visa, MasterCard or American Express. Co-branded cards tend to provide stronger consumer protections than traditional store cards do…charge lower interest rates…and can be used wherever credit cards are accepted, not just with the issuing merchant. Their typically higher credit limits also can minimize the damage to your credit score.

Helpful: If a merchant offers a choice between a traditional store card and a co-branded card, opt for the traditional store card only if your credit score is too low to qualify for the co-­branded card—traditional store cards tend to have lower score requirements. Some merchants also offer a store debit card. These generally are best avoided—debit cards typically provide less comprehensive consumer protections than credit cards in the event of fraud.

The following seven store cards offer some of the best perks…

Amazon Visa provides 3% back on Amazon.com purchases, plus 2% back at gas stations, drugstores and restaurants and 1% elsewhere. Rewards are earned as points that can be easily redeemed on future Amazon purchases. You’ll also receive an Amazon gift card of $30 when your credit card application is approved. Interest rate: 14.24% to 22.24% annual percentage rate (APR) depending on creditworthiness.* ­Amazon.com

Barnes & Noble MasterCard offers a 5% rebate on all Barnes & Noble purchases online and in the store aside from Barnes & Noble gift cards sold at discounts on other sites. You also earn a $25 gift card after making your first purchase. Cardholders earn reward points for using the card to make non–Barnes & Noble purchases, but the reward is equivalent to only a 1% rebate and must be spent at Barnes & Noble. These benefits are in addition to benefits from B&N memberships, which cost $25 a year. Interest rate: 13.99% to 24.99% APR depending on creditworthiness. BarnesAndNoble.com

Gap Visa offers a 15% discount on your first online purchase with the card at Gap, Old Navy, Banana Republic, Piperlime or Athleta. Cardholders then get 10% off every Tuesday on most merchandise at most Gap and Piperlime locations and on their websites. Cardholders also earn five points for every dollar spent at Gap and its affiliated stores and sites…or one point per dollar anywhere else they use the card. Every 1,000 points earns a $10 Reward Card, equivalent to an additional 5% rebate for Gap purchases or 1% rebate for purchases at the company’s other stores. Reward Cards can be redeemed at Gap stores and its affiliated stores and sites. Interest rate: 23.99% APR. A traditional store credit card also is available and is a reasonable option if you do not qualify for the Visa card. Gap.com

Kohl’s credit cards provide 15% off your first Kohl’s purchase with the card. Cardholders also receive at least 12 special discount offers good for 15% to 30% off throughout the year. Interest rate: 23.99% APR. Credit.Kohls.com

Lowe’s consumer credit cards let you have 5% off purchases made at Lowe’s (this discount does not apply to services, gift cards and a few brands of products and cannot be used in conjunction with other coupons or discounts)…or special financing terms-0% APR for up to six months on a purchase of $299 or more or a 5.99% APR for up to 84 months on a purchase of at least $3,500. Interest rate: 24.99% APR. Lowes.com

Nordstrom Visa Signature provides two points per dollar spent at ­Nordstrom, Nordstrom Rack and Nordstrom.com. Each 2,000 points earned nets you a $20 “Nordstrom Note” gift certificate that can be used in-store or online—the equivalent of a 2% rebate. That alone is nothing special, but cardholders also can earn triple points on certain days of their choosing each year…get reimbursed for the cost of alterations, within limits, by using Nordstrom Notes…and earn additional perks if they reach certain annual spending plateaus. Interest rates: 10.9% to 22.9% APR for Nordstrom purchases, depending on creditworthiness (14.9% to 22.9% for non-Nordstrom purchases). Shop.Nordstrom.com

Target RedCard is one of the most attractive store cards, even though Target experienced a huge data breach last year. The company has beefed up security so that Target cards now are among the safest credit cards available. RedCard users get a 5% discount on most types of purchases at Target and Target.com. Cardholders also get free shipping at Target.com and an extra 30 days to make returns. There’s also a fund-raising program that donates 1% of the amount you spend to the school of your choice. Interest rate: 22.9% APR. Target.com/redcard/main

Store Cards Can Hurt Your Credit Score

Do not sign up for store cards lightly. These cards can reduce your credit score in several different ways—and those credit score reductions can really add up if you sign up for many store cards. Here’s why…

Store cards tend to have very low credit limits, often less than $1,000. Make a large purchase with one of these cards, and you will use up most of its credit limit. Credit-scoring systems penalize consumers who use a high percentage of their available credit, either overall or with specific cards.

Exception: “Co-branded” store cards featuring the logo of a general card issuer such as Visa, MasterCard or American Express often have higher credit limits.

Regularly signing up for store cards reduces the average age of your credit accounts. Credit-scoring systems favor borrowers who have managed their accounts responsibly for many years. If you sign up for a few store cards each year, the average age of your accounts will remain short even if you have had other cards for decades.

Simply applying for store cards costs you credit score points. Each credit card application you submit costs you points off your credit score for the next 12 months. A few points might not seem like much, but it can quickly add up if you apply for store cards frequently or if your credit scores are already marginal.

*Card interest rates and other details are subject to change.

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Source: Curtis Arnold, founder of the card news and review websites CardRatings.com and BestPrepaidDebitCards.com. He serves on the advisory board of the Center for Consumer Financial Services at Rochester Institute of Technology and is author of How You Can Profit from Credit Cards (FT Press). CardRatings.com

Store Cards Can Hurt Your Credit Score

Do not sign up for store cards lightly. These cards can reduce your credit score in several different ways—and those credit score reductions can really add up if you sign up for many store cards. Here’s why… Store cards tend to have very low credit limits, often less than $1,000. Make a large purchase with one of these cards, and you will use up most of its credit limit. Credit-scoring systems penalize consumers who use a high percentage of their available credit, either overall or with specific cards. Exception: “Co-branded” store cards featuring the logo of a general card issuer such as Visa, MasterCard or American Express often have higher credit limits. Regularly signing up for store cards reduces the average age of your credit accounts. Credit-scoring systems favor borrowers who have managed their accounts responsibly for many years. If you sign up for a few store cards each year, the average age of your accounts will remain short even if you have had other cards for decades. Simply applying for store cards costs you credit score points. Each credit card application you submit costs you points off your credit score for the next 12 months. A few points might not seem like much, but it can quickly add up if you apply for store cards frequently or if your credit scores are already marginal.

*Card interest rates and other details are subject to change.

Source: John ­Ulzheimer, credit expert at CreditSesame.com, based in Mountain View, California, which offers free credit scores and credit monitoring to consumers. He previously worked for Equifax Credit Information Services and Fair Isaac, which designed the FICO credit-scoring system. JohnUlzheimer.com

Date: October 15, 2014 Publication: Bottom Line Personal
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