TULSA, Okla. — Retailers typically ramp up aggressive sign-up strategies for store credit cards as the holiday shopping season approaches.
Before you sign up, financial experts warn that the enticing discounts offered at checkout could end up costing far more than they save.
The average interest rate on store credit cards has reached about 30%, with some charging as much as 35.99% — rates that are astronomical even by credit card standards, according to Ted Rossman, a financial analyst at Bankrate.
"Hey, do you want to save 20% off today's purchase?" Rossman said, mimicking the typical pitch shoppers hear at checkout counters.
But that immediate discount can quickly turn costly for consumers who don't pay off their card balance each month.
Store credit cards are often easier to obtain than traditional Visa, Mastercard or American Express cards, making them a common first credit card for many people.
"Store credit cards are often people's first credit cards. They're easier to get, which is part of why the financial industry charges higher interest rates," Rossman said.
He adds, many consumers don't even realize they're signing up for a credit card when approached to sign up to get an immediate purchase discount at the register.
Some even mistake the offer for a store loyalty program or promotional discount, not understanding they're taking on a debt instrument that requires a credit check.
Zero-percent offers can turn costly
Some store cards appear particularly attractive because they offer zero-percent financing, but there's often a significant catch. Unlike traditional bank credit cards that only charge interest going forward after a promotional period ends, many store cards use "deferred interest" plans.
"If you don't pay the full amount by the time the clock runs out, then they go back and they charge you retroactively for all of the interest that would have accumulated," Rossman said.
This means consumers who fail to pay off their entire balance before the promotional period expires will be hit with interest charges calculated from the original purchase date.
When store cards make sense
Despite the risks, Rossman says store credit cards can make financial sense in two specific scenarios — but only if consumers pay off their balance in full every month.
The first scenario involves significant purchases with substantial discounts. If shoppers can get 20% off a large purchase like appliances or extensive holiday shopping at one time and pay it off during the billing cycle its purchased in, they can save a considerable amount of money.
The second scenario benefits loyal customers of specific retailers. Shoppers who consistently shop at stores like Amazon, Best Buy or Target and earn 5% back on every purchase with the store's card can benefit from the rewards.
"But again, you've got to pay in full, you've got to avoid these high interest rates," Rossman said. "If you ever carry a balance, store cards are not a good choice for you just because of how high these rates are."
Holiday shopping pressure
Retailers push these cards most aggressively during the fourth quarter, when most store card sign-ups occur. Employees are often incentivized to sign up customers, with some stores running contests offering bonuses to clerks who register the most new cardholders.
Financial experts advise consumers not to feel pressured into making rushed decisions at the checkout counter.
"It's fine to say no thanks, or not right now, or I'm gonna think about it," Rossman said. "Don't be pressured to make a rushed decision, because holiday shopping is crazy enough as it is."
The bigger picture
The rates on these cards have been climbing steadily. What used to be considered a high rate of 30% is now the average, with the highest rates reaching 35.99%.
For most Americans, there's no legal cap on credit card interest rates. While the Military Lending Act caps rates at 36% for active service members, no such protection exists for civilian consumers.
As the holiday shopping season approaches, consumers should remember they have the power to decline these offers and avoid potentially costly financial commitments made in the rush of holiday shopping.
This story was reported on-air by a journalist and has been converted to this platform with the assistance of AI. Our editorial team verifies all reporting on all platforms for fairness and accuracy.
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