Holiday Shoppers Should Think Twice Before Signing Up for a Store Credit Card

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  • Many store credit cards offer an instant discount on a purchase or zero-interest special financing.
  • Instant discounts are usually worth less than the sign-up bonuses offered by non-store credit cards.
  • Zero-interest financing tends to be deferred interest and can be costly if you don't pay off your purchase in time.

Those instant discounts and financing offers aren't always as great as they seem.

As you're doing your holiday shopping, there's a good chance you'll see offers to open a store credit card. Many retailers advertise their credit cards to consumers during the checkout process, both in-stores and online.

These offers often include an instant, introductory discount, such as 20% off your first purchase. Or, you could get special 0%-interest financing if you want to pay off your purchase in installments. While these might seem like good deals, the truth is that most store credit cards are anything but. Here's why.

There are much bigger savings available

When you're about to make a purchase, an instant discount is always tempting. If your total is $200, and a store credit card is offering a 20% discount, that will take it down to $160. And there's hardly any effort required on your part, since all you need to do is fill out a credit card application.

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A $40 discount is better than nothing. But it's also a lot less than you could get from other credit cards that aren't tied to a store. For example, some cards offer a bonus of $200 if you spend a minimum amount, such as $500 or $1,000, in three months. If you're open to cards with an annual fee, and a higher spending minimum, you could find bonuses worth $500 to $1,000, or more.

Most store credit cards actually have small bonuses when you compare them to what else is out there. Depending on your order amount, a discount offer might save you $50 to $100 at best. And even if you have a big purchase to make, the discount itself might be capped at a certain dollar amount. That's why these discounts are rarely the best way to maximize rewards on holiday shopping.

Want to find bigger bonus offers? Check out The Ascent's best credit card sign-up bonuses.

Zero-interest financing has its drawbacks, too

Another benefit a store credit card may offer is zero-interest financing. With this type of offer, you have until the end of a promo period to pay off the purchase. For example, a store card could have an offer of "no interest if paid in full within six months."

The dangerous part is that these are usually deferred interest offers. That means the interest is only deferred for the promo period. If you don't pay off the purchase in full within that time frame, you'll be charged all of that deferred interest. The company will go back to the purchase date and add all the interest payments at the card's normal interest rate.

To be fair, it is possible to benefit from a deferred interest offer. If you get your balance paid off during the promo period, you'll avoid all interest charges. Keep in mind though that the minimum payment amount often won't be enough to pay off the full balance in time.

While deferred interest isn't all bad, this is another area where non-store credit cards offer a much better deal. This time, it's 0% APR credit cards. These offer a 0% APR lasting for an intro period, which could be much longer than what you'd get from a store card. Best of all, these are waived interest offers. Even if you don't pay everything off within the intro period, you're only charged interest on the remaining balance going forward.

Interested in paying off holiday purchases over time? Here are The Ascent's best 0% APR credit cards.

Store credit cards aren't all bad. There are some that have good benefits and could provide value for frequent customers. However, most of them just don't measure up to the competition. That's why it helps to check out the best credit card offers before you do your holiday shopping. When you know what kind of deals are available, you'll quickly find out if a store card is worth getting, or if you could do better.

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