You Should Never Sign Up For Store Credit Cards. Here's Why

The next time you find yourself thinking about signing up for a store credit card for an instant discount, you may want to pause before you commit to anything — even if it's for the most irresistible impulse buy.

Personal finance expert and author Trent Hamm explains that the 10 or 20 percent discount that comes with your application for a store credit card may end up costing you more than it's worth. Even from the get-go, "you begin getting charged interest on your purchase the second the new card is activated and swiped. Often, your first bill will already have a significant finance charge on it," Hamm writes in his blog, The Simple Dollar. 

What's more, the initial discount from the day you signed up is also probably the last good thing you'll get from your store credit card — without having to work for it. Retail cards only give you value if you spend thousands of dollars at that store a year, and any points you collect on purchases can only be used at that one particular retailer (via The Points Guy).

No matter what we promise ourselves, there may be a time when our cards carry a balance — and that's when store credit cards may be claiming back the discounts they used to lure you in in the first place. CreditCards.com states that the average annual percentage rate (APR) on a store-only card was just under 28 percent in 2019, while US News & World Report points to the APR for other types of cards was roughly 23 percent. 

Why is this important? The APR is the percentage in interest you need to pay if you leave a balance on your credit card. You'll need a low APR to make sure you don't spend your entire paycheck just to clear the charges you will incur on an outstanding balance. For instance, if you have a balance of $1,000 and you need six months to pay that off, a 16 percent APR will cost you $47 in interest a month. If you have the same balance on a card with 20 percent APR, the interest is $59 dollars. Not only should that sound like a good incentive to look for a credit card whose terms and conditions favor you, it's incentive to skip an unnecessary purchase. 

Consumer advocates say that buying into the premise of getting a store card is risky, especially since customers generally take up an offer in order to save money. "If it's a 0 percent deal on a store card, there's a pretty good chance it's a deferred interest offer," National Consumer Law Center attorney Chi Chi Wu, tells CreditCards.com. Wu says those deals are also high risk because if you don't pay off the debt at the end of every month, you get charged interest on every item you've charged on your card, and as a result, you'll pick up a big chunk of retroactive interest. 

If you really need the instant savings of a store credit card, read the fine print before you say yes. You may be better off walking away from the item for now, or passing on the discount, because the card could well become more trouble than it's worth. Saying no also could put you on the path to a healthier relationship with your finances.