The Discounts And Dangers Of Store Branded Credit Cards

During the holiday season, American consumers hit retailers hard for their holiday shopping. During their shopping period, many consumers may have noticed the increased marketing of retailers of their store branded credit cards. This usually happens when the shoppers hit the cash register and most offers often entice them with discounts for signing up.

Retailers love to offer their store branded credit cards – known in the industry as private label credit cards – to consumers because, not only are they highly profitable but they also encourage consumers to spend more at their stores. It is well known in the retail industry that, when consumers spend with credit cards, they spend more. With a store branded credit card, retailers are also encouraging store loyalty among consumers.

In exchange for applying for their credit cards, retailers offer consumers enticing discount offers or no interest fee periods, depending on the retailer. For instance, Best Buy offers new store branded applicants 18 months of freedom from interest charges for all card purchases that are higher than $249 on their credit cards.

Naturally, many consumers would be tempted with the offer. A 20% discount or 18 months of interest free charges can be quite advantageous. That is, of course until they check the details. A 20% discount is quite advantageous as long as the card holder keeps up with his or her payments. If a payment is missed or the card holder pays only the minimum monthly due, then the 20% discount becomes completely irrelevant and the retailer actually sees more profits instead. What’s more, the card holder’s credit score gets a hit as well.

Another perceived advantage that store branded credit cards bring is that they are easier to apply for than regular credit cards. Usually, retailers only need to do a quick check of a consumer’s credit score before they can get instant approval for their new store branded credit card right at the point of purchase.

The limited verification requirements of credit cards make them very attractive for consumers who have low credit scores and cannot easily get regular credit cards. However, what this means is that store branded credit cards can compensate for the inherent risks in their more lenient approval process. Thus, store branded credit cards are offered with higher interest rates compared to regular credit cards, usually going as high as 20%. In comparison, regular credit cards carry an average variable interest rate of 12%.

A lot of store branded credit cards also carry additional delinquency rates. Card holders who miss out on a payment may just see their interest rates climb as high as 27%.