By Mitch Lipka
Oct 22 (Reuters) - U.S. retailers dangle enticing bait to
sign up for store-branded credit cards but biting could be a
costly decision for consumers, particularly for pricey items
like engagement rings, computers or dining room sets that may
take months, or even years, to pay off.
A recent analysis of 64 cards from 42 retailers by
CreditCards.com (http://creditcards.com) found that the average
interest rate for a store-branded card is more than 23 percent.
Jewelry chain Zales topped the list with a rate of 28.99
percent, followed by office supply store Staples SPLS.O at
27.99 percent. The average credit card has an interest rate of
15 percent.
Reuters asked Matt Schulz, CreditCards.com's senior industry
analyst, about the pitfalls and pluses for store-branded cards.
Q: How do stores like Zales and Staples get takers for their
cards? What tactics do they and other retailers use to entice
consumers to apply?
A: Most retailers rely primarily on discounts at the
checkout counter to entice people to apply for these cards, but
it is important that people don't allow themselves to feel
pressured.
If you're interested in the card, say no, but take a
brochure home with you and read up on the details. If the card
still sounds good to you after you read up on it, apply the next
time you go to that store. Chances are all the same perks that
drew you in will still be there, but most important, you'll be
making a much more informed decision.
Q: What is the target audience the stores want to get to
apply for the cards?
A: Many of these cards are about bringing customers back and
building loyalty. I think that would be especially important for
Staples, which thrives on repeat business from (buyers) of all
sizes. However, even high-end department stores like Nordstrom (N:JWN)
(http://shop.nordstrom.com/c/rewards-questions) and Macy's
(http://mcys.co/1GixmCS) have tiered programs that reward
frequent customers.
Retail card rates are higher in part because of the risk
involved. These cards are offered to a wide range of consumers,
so interest rates have to be a bit higher to help deal with that
risk.
Q: Is it ever a good deal to go for the store-branded card?
If so, when would it make sense?
A: Store-branded cards definitely can work for you, but only
if you pay your balance off at the end of each month. If you
never carry a balance, those 20 percent discounts that come with
the card can lead to real savings. However, if you're paying 25
percent interest to get that 20 percent discount, the math
clearly doesn't work in your favor.
Q: What should consumers consider as alternatives to finance
costly purchases, like that engagement ring, as an alternative
to high-interest store-branded cards?
A: A general-purpose credit card can be a good option. More
often than not, those cards will have lower APRs and better
rewards than their retail counterparts. It's such a competitive
time in the credit card business that if you've got good credit,
you should be able to find a good credit card deal.
Q: When consumers are given the offers for the cards, what
should they be looking for in the fine print?
A: As with any credit card, APRs and fees are the most
important things to understand. However, it's also important to
know whether the card can be used anywhere or just with that
retailer.
They should also understand the rules surrounding any
rewards or discounts that come with the card. For example, are
there caps on how much you can earn? Are there minimum spending
thresholds that you must reach?
Q: Are there any popular retailers that offer branded cards
with a reasonable rate?
A: The best rate we saw was a 9.99 interest rate on the
Dillard's American Express (N:AXP) card. That's the low end of a range
of possible APRs that tops out at 24.99 percent.
That range makes it very important that you understand what
type of credit you have before you apply. After all, the last
thing anyone wants is to think they're getting a 9.99 percent
APR on their credit card and end up with a 24.99 percent APR.
(Editing by Beth Pinsker and Diane Craft)