Got a purse full of plastic? Fess up. The average household carts around nearly 17 of the buggers, reports Cardweb.com, including 8.3 forgotten retail charge cards crammed in the recesses of our wallets. Two-thirds of us haven't even dusted off those charge cards in quite some time. They seem oh-so-'90s in these days of smart cards and encryption chips. During the last decade, retailers offering charge cards have watched their market share shrink to just 13% of all credit card use.
But retailers are out to shake the oldfangled image of their charge cards. To entice us to tap their credit lines, they've fashioned their offerings after their more popular reward-card counterparts -- offering airline miles, upgraded hotel and rental car accommodations, and even donations to local school systems. Free shipping, easier returns, invitations to special store events, and advance notice of sales are standard. In some programs, cardholders receive points for each purchase that they can then apply to gift certificates, free delivery, or a chunk of change off a frozen turkey or Calvin Klein duvet cover.
The makeover is delivering results. According to The New York Times (free registration required), in 2001, spending on store cards rose 4%, to $125 billion, on top of an 18% augmentation in charge card use the previous year.
The perks are certainly an improvement. But don't say "yes" to just any credit card come-on. Consider the catches:
Higher interest rates: Many store charge cards carry rates in the 20% range on outstanding balances. Compare that to the average general-use credit card rate, which is 14%.
Limiting perks: Often the low interest or bonus points only apply to purchases made at that retailer. Before you pay, weigh whether you'd be better off earning airline miles or cash back by using another card. (If you like cash, we humbly suggest checking out our very own Motley Fool Visa rewards card.)
Pressure to overspend: Watch out for the urge to splurge. It's easy to get caught up in a spending spree to try to earn a gift certificate or percentage off your next purchase. Do the math first and question whether ruffled capris are really an appropriate workplace outfit.
Too many open credit lines: A wallet full of plastic can negatively affect your credit score. While you may not care now, when it comes time to get a loan or refinance your home, you don't want to look like a crazed retail junkie in the eyes of a potential lender.
Penalties: Co-branded cards may be pretty, but the penalties they carry sting just as much as with other credit cards. Read the fine print.
Short expiration dates: Most retail charge cards typically expire after three years.
Before you apply for another card, see if the plastic you already carry offers some perk you can use.