Today, interest rates on credit cards are extremely high even for those with average to good credit.
If you have great credit, you can qualify for those lower rates used in advertisements and have your choice of credit accounts. If your credit is less than perfect, your APR will be quite high today on most credit card offers.
The high rates on department store cards are not as acceptable to us as they once were as they add several percentage points to those charged by big bank cards.
Why Are Higher Rates Possible
If your department store chain offers its own credit card but the interest rate is higher than for a standard MasterCard or Visa card, why would you apply at the store?
The department store cards have been popular over the years for two reasons:
1. Rates are higher but the accounts are easier to qualify for
Most retail chains now offer branded credit card accounts and the larger retailers offer two versions. One is a credit card that is branded with the company’s name and can also be used in other businesses as it carries a Visa or MasterCard logo and is backed by those services.
A second card may be offered to those applicants who cannot qualify for the standard credit card due to a lower credit rating or low income. The card is offered for one reason – to increase sales.
If you have a Sears credit card that can only be used to makes purchases from Sears company locations – where will you go if you need to buy new tires on credit?
If you need to buy gifts for the holidays and are short on cash you will go to Sears to buy presents for your family because you can buy now and pay later.
Major department store chains offer multiple lines of products in various categories. With the exception of groceries, you can buy almost anything from pet products to tools, from toys to home accessories.
Today a large retail department store can fill almost all of your needs. If you have their branded card you are likely to think of that store name first when you go shopping. If your charges are limited only to that brand name store, you can buy what you need and the store increases sales by offering a credit account.
2. Department store credit cards as a status symbol
In this economy, using a credit card as a showoff status symbol seems a bit silly. However, there are still consumers who like to open their wallet to display a selection of credit cards with high end department store names on them.
While most of us think of department store credit accounts as Sears or Belks, there are those who value a card with the Tiffany’s logo. Other people like to advertise their favorite shopping venue and businesses love it when that happens.
Advantages and Disadvantages
Rates on various department store cards may be higher but some retailers offer benefits that make carrying their card worth the cost. This benefit is usually offered by the more costly stores.
If you have a branded card from The Gap you can save 10% on all your purchases the first Tuesday of each month and get free shipping all the time for online purchases.
With a Macy’s card you are awarded 10% cash back on purchases made with that labeled credit account. For lower end retailers such as Walmart, there is no benefit that makes up for the high interest charged. A low introductory rate lures WalMart shoppers to apply for the labeled card but over time it is an expensive credit account.
The biggest disadvantage of having multiple department store accounts is the low spending limit common to such credit cards. If you have four or five labeled cards you may be refused for a standard credit card due to the lender believing you carry too many revolving accounts even though your total spending limit is quite low.
Summary
Rates on department store cards are excessively high unless the retailer offers significant benefits when you use your card.
The excess APR charged by department stores provide a source of income for the retail chain as it is over and above the fees they pay to MasterCard or Visa. You are paying a premium rate for the department store to act as a mediator by providing their branded credit account with a popular logo.
Unless you are able to profit from rewards and benefits attached to department store cards, you can save money by applying for a standard Visa or MasterCard without the fancy logo.
PS: I would also recommend you to read my guide on high risk loans if your credit is less than perfect!
