6 reasons to resist store credit cards

Credit cards fanned out

Be leery of store credit cards.

Just about every retailer out there has its own credit card nowadays.

You walk into a store or make a purchase, and they hit you up with a credit card offer.

Usually, it's a generous discount, gifts or offers of no interest or payments for a year. All you have to do is sign on the dotted line.

But store credit cards are not worth it.

Whatever you will get out of the deal now will be wiped out by deceptive promotions, high interest rates and traps. You'll wish you had just paid cash or used the major credit card in your wallet.

Here are 6 reasons you should stay away from store credit cards:

Reason 1. Higher interest rates.

Almost all store credit cards carry higher interest rates than major credit cards. You'll often be tempted with lower introductory rates, or perhaps 0%, for a period of time.

But when it resets to the regular rate, it's pretty high. Like 18%. Or more.

Store Card Interest Rates

Store Default rate
Best Buy 17.99%
Target 22.9%
Macy's 24.5%
Home Depot 17.99% to 26.99%
Gap/Old Navy 23.99%

These rates are a bad deal at a time when you can get a low-interest card with a rate near 11%.

Not that you should be financing nonessential retail purchases anyway. But if you're going to do so, a card from a retailer is the worst way to do it.

Any savings you might get up front (like 20% off or a gift) could be negated by the high interest rate should you carry a balance on the card.

Reason 2. The reward programs aren't anything special.

Most store cards offer the same points or rebates that you can earn from the typical Visa or MasterCard reward program.

They return anywhere from 1% to 5% of everything you spend, depending on what you buy and where you buy it.

The points you receive (and certainly the cash rebates) can be redeemed for everything from airline tickets and hotel rooms to clothes and electronics.

But when you use a store card, all of the points or discounts you receive can only be redeemed at one retailer and in some instances are limited to specific merchandise at that one retailer.

Simply put, the best rewards are the most flexible rewards, and store card reward programs usually offer the fewest choices on where and how to spend your booty.

That's why you don't want to go with a store-branded Visa or MasterCard, too.

Yes, they can be used at other stores. But the rewards you earn are still limited to one store, and there's no reason to limit yourself like that.

Reason 3. Store cards make you a less savvy shopper.

Research shows that shoppers with store credit cards spend more than other customers.

That's because cardholders often become more focused on racking up points and rebates than finding the best deal at other stores.

If you're at the register at Gap with $175 in items, you're likely going to throw in another item to make it $200 to get the $10 certificate.

You get the $10 reward but you still spent $15 more than you intended.

Retailers know this very well, and it's why they use rewards programs. As a store cardholder, you'll also be bombarded with invitations, offers and discounts for "our valued customers."

Reason 4. Deceptive promotions and deals.

The chance to pay no interest for one or two years on major purchases is pretty enticing.

And if you're financially disciplined and do everything right, it can be a great deal.

The problem is that these deals have a big catch if you don't follow the rules.

If you're one minute late on a payment or have so much as a dollar left on your balance by the deadline, they'll charge you all the interest on the purchase going back to the purchase date.

And it's usually at a sky-high rate, near 30%.

Miss a payment near the end of the term, and that interest-free deal could turn into an expensive bill that would cost more than had you just financed it on your regular low-rate credit card.

Reason 5. You likely don't know what you're signing up for.

Impulsively applying for a credit card at a kiosk or a register isn't a wise financial move.

You're unlikely to see all the fine print and catches buried in the terms.

If you're opening up the account in the store, it's likely that you don't know what you're signing up for.

This is why retailers use gifts, coupons, discounts and giveaways to get you to sign on the dotted line. They want you to sign up and start spending as soon as possible.

Opening up a credit card account should be something you do on the Web at home by looking for the best deals.

It's not something you do at the mall on a whim.

Reason 6. You could hurt your credit score.

Opening one account every year or two isn't a big deal.

But if you're like many compulsive shoppers, you may open a few of these accounts per year to get big discounts, gifts or the zero percent financing.

The problem is, each time you apply for a credit card, your FICO score can dip from 10 to 15 points, perhaps even more.

Store cards also have relatively low limits, so if you rack up some charges, you could be near your limit. That, in turn, makes you use more of your available credit, which further dings your score.

Opening up an account, taking advantage of the zero interest financing and then closing the account right after you pay it off can further impact your credit score.

Opening a few cards and having a 40 point reduction in your FICO score can make a big difference if you buy a vehicle or need a loan in the next year. Let alone buy a house.

A lower credit score could mean you'll have to pay a higher interest rate when it matters most.