6 things to watch out for with store credit cards

If you like to shop, then you probably can’t even count the number of times you’ve been offered a credit card while checking out.

It’s often a tempting offer. Some retailers promise gift cards — even enough to cover your entire purchase and then some — or a hefty discount just for signing up for their credit card right there on the spot.

But it’s never a good idea to sign up for a new credit card without taking time to read the fine print and consider the impact it could have on your finances. That’s especially true of store credit cards, which carry numerous risks.

With that in mind, we’ve compiled some of the most-common risks of store credit cards, along with some advice on not falling into any of these traps.

Store credit card risk No. 1: You spend just to take advantage of rewards

Store cards can bring out the shopaholic in all of us.

You might be tempted to spend more than you can afford when you have a store card in your wallet. Store cards’ special promotions and rewards programs can entice you to go beyond your budget and buy things you don’t really need.

Those special promotions range from exclusive discounts to gift cards you can earn by spending a certain amount of money.

Money-saving offers seem nice. But how much are you really saving if you’re spending more to score a discount?

Store credit card risk No. 2: You get hit with heavy interest

The more you spend, the more difficult it will be to pay off your balance in full every month.

Unfortunately, carrying a balance on a store card is frequently even more expensive than carrying a balance on another credit card — because store cards typically charge higher interest rates.

Because of the typically high interest rates, store cards have the potential to be even more dangerous than traditional credit cards when you carry a balance.

But you can avoid paying interest by paying off your balance on time and in full every month. By sticking within your budget, you should be able to avoid carrying a balance.

Store credit card risk No. 3: You use a card’s ‘special financing’ feature

Many retailers promote “special financing” offers with 0% interest over a specified period of time to help customers spread out the payment for big purchases. This offer might entice you to carry a balance, because it seems like there’s no penalty for not paying the full balance from month to month.

But there’s a catch.

If you don’t pay off your full balance from the offer by the time the special-financing period ends, you might be charged interest not only on the remaining balance, but on the entire amount of interest you would have paid during the plan. It may even apply to portions of the balance you’ve already paid.

These bait-and-switch promotional APRs are known as “deferred interest” offers. These offers are how many store cards trick you into paying more.

You can spot this trap for yourself if you look out for terms like “special financing” and “deferred interest” when you’re reading through the credit card’s fine print.

Store credit card risk No. 4: You can’t make the full minimum payment on time

At the very least, you should try to make your minimum payment by the due date.

One of the only things more frustrating than paying interest on a high-interest credit card is making a payment and still getting hit with late fees and penalty APRs because you didn’t pay quite enough, or you missed the due date.

Many store credit card issuers treat less-than-minimum payments and late payments the same way. Let’s say your minimum payment is $50, but you can’t afford to pay that much. Even if you pay a portion of your minimum payment, you could get hit with a late fee that costs you up to $40.

Beyond the immediate financial consequences, late payments and less-than-minimum payments could also harm your credit. Late payments can stay on your credit reports for up to seven years — so even after you catch up and make the payment, they may not go away.

Store credit card risk No. 5: You apply for too many store cards

Retailers might offer you a gift card or special discount as an incentive to sign up for their store card. Because store cards usually have no annual fees, you might be tempted to apply for a new credit card every time you shop at a store that offers one.

But applying for multiple credit cards in a short period of time can hurt your credit. That’s because each card application will typically trigger a hard inquiry and multiple hard inquires can make you look like a risky borrower to lenders.

It’s better for your overall credit to spread out your credit card applications over a longer period of time.

Store credit card risk No. 6: You get stuck with a low credit limit

A store card may offer you a lower credit limit than you’d receive from other credit cards.

If you carry a balance, a lower credit limit will increase your credit utilization ratio, which in turn could hurt your credit. While you often won’t be allowed to make purchases that send you over your limit, it is possible for the bank to approve a purchase that sends you over it. And if you spend more than you’re allowed to, your card could be sent hurtling into default.

How to avoid these store credit card risks

If you commonly shop with a store credit card, here are a few tips to avoid falling into debt.

1. Stick to your budget. To avoid spending more than you can afford, set a budget when you go shopping. If you don’t trust yourself to do this, a store card might not be the right choice for you.
2. Pay your balance in full. Store card APRs are generally higher than the interest rates charged by regular credit cards. Whether you’re taking advantage of deferred interest offers or facing a high APR from the get-go, carrying a balance month after month is a bad — and expensive — habit that can lead you straight into debt.
3. Set a payment reminder. Set up autopay so you don’t forget to pay your credit card bill on time. Remember, even one late (or less than minimum) payment can lead to expensive fees and penalty APRs. Plus, it could hurt your credit.
4. Read the fine print. Many of these cards’ tricky terms are tucked deep into the terms and conditions. It’s in your best interest to read these agreements closely before applying for the card, and even to get help doing so if you need it.

If you know what you’re getting into with a retail credit card, it’ll be more difficult for the card issuers to trick you into paying more in interest and fees.