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‘Supersize’ store cards let you pick from many retailers, but beware inflated APRs

More retail cards are expanding access to different merchants, but that’s about as consumer-friendly as they get

Summary

Store credit cards are increasingly getting supersized, offering the ability to make purchases at a cartful of retailers and dangling various promotional offers. Yet consumer advocates warn that these cards might not be so “super,” given their higher-than-average interest rates and other drawbacks.

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Store credit cards are increasingly getting supersized, offering the ability to make purchases at a cartful of retailers, not just one retailer, and dangling various promotional offers.

Yet consumer advocates warn that these cards might not be so “super,” given their higher-than-average interest rates and other drawbacks.

Gary Herman, president of Consolidated Credit, a nonprofit consumer credit counseling service, says thanks to their hefty interest rates and the temptation to use them at so many places, these supersize cards can lead to a supersize pile of debt.

“If someone is not used to using credit and doesn’t understand how much they’ll pay in interest, they can get over their head fast,” Herman says.

Howard Dvorkin, chairman of Debt.com, goes so far as to condemn all store credit cards as being “almost evil.”

See related:  I mistakenly applied for a store card. Can I stop it from dinging my credit?

Synchrony expands reach of Car Care credit card

A prime example of this supersizing trend was recently rolled out by credit card issuer Synchrony, one of the largest issuers of store credit cards, also known as private-label credit cards. Synchrony teamed up with payment processor Discover to broaden acceptance of Synchrony’s Car Care credit card.

Cardholders now can use this card at more than 500,000 locations in the U.S., including gas stations, auto repair shops and car washes. When the card was introduced in 2017, Synchrony said it was accepted at more than 210,000 gas stations and auto repair shops.

Among the merchants that accept this no-annual-fee card are:

  • Chevron, Texaco, Exxon and Mobil gas stations.
  • Hendrick Automotive Group dealerships.
  • Penske Automotive Group dealerships.
  • Meineke Car Care Centers.
  • Pep Boys auto service centers.
  • Continental and Cooper tire retailers.
  • Maaco auto body shops.

The Synchrony Car Care credit card now offers 0 percent APR financing for six months on purchases of at least $199 at thousands of auto parts and service locations (but not at gas stations).

The regular purchase APR for the card is 29.99 percent. CreditCards.com’s 2018 Retail Store Card Survey revealed the average median APR for retail (store) cards included in the survey were nearly 5 percentage points higher than that of general-purpose cards (20.82 percent).

Synchrony defends the purchase APR of its Car Care card as being on par with APRs of other store cards and touts the card’s convenience.

“The feedback we received from consumers is that they want personalization and choice as they compartmentalize their budget and spending. This card provides consumers with that choice, helping them do that with their auto purchases,” Synchrony says in a statement.

See related:  Retail cards decline as point-of-sale loans gain steam, TransUnion says

0 percent APR store card: A wolf in sheep’s clothing

Ted Rossman, industry analyst for CreditCards.com, says that choice comes at a cost, considering the 29.99 percent purchase APR.

Plus, he adds, the 0 percent promotional APR “could be a wolf in sheep’s clothing.” That’s because the 0 percent promotion is a deferred-interest offer. With deferred interest, if you fail to pay the entire amount by the time the promotion expires, you’ll be charged retroactively on your average daily balance going back to day one, Rossman noted.

Despite those downsides for consumers, Brian Riley, director of the credit advisory service at Mercator Advisory Group, expects to see more of these supersize store cards come along, as they’re lucrative for card issuers and retailers. And these cards are not confined just to Synchrony or to the automotive category.

For instance, Synchrony launched its HOME Credit Card in February 2019. It can be used at more than 1 million large, midsize and small stores nationwide to buy goods like furniture, home décor, flooring and appliances. Participating retailers include Abt, Carpet One, Conn’s HomePlus, Lovesac, Mattress Firm, Mohawk and Relax the Back.

Benefits of the no-annual-fee HOME card include 2 percent cash back on purchases under $299, six months of promotional financing on purchases of at least $299 and 12 to 60 months of promotional financing on qualifying purchases at participating stores. But just like the Car Care card, the HOME card comes with a purchase APR of 29.99 percent.

For health care consumers, Synchrony serves up the CareCredit card, accepted at more than 220,000 locations for medical, veterinary and personal care services, procedures, treatments and products. The card’s standard APR is 26.99 percent; a number of no-interest and reduced-interest offers are available.

Synchrony competitor Comenity, too, issues supersize store credit cards. The American Kennel Club Visa Platinum and Visa Signature cards for instance, can be used at pet stores, veterinary offices and elsewhere; the variable APR for purchases is 15.23 percent, 21.24 percent or 25.24 percent.

Wells Fargo, meanwhile, delivers a host of options for supersize store credit cards in retail sectors ranging from electronics and home improvement to jewelry and recreation.

And Credit First National Association, owned by tire manufacturer Bridgestone, supplies a supersize store credit card to more than 8,000 U.S. auto repair and tire merchants (not just stores within the Bridgestone family).

See related:  How to upgrade from a retail store card to a regular credit card

Consumer advocates say avoid store cards ‘like the plague’

Although the promotional APRs lavished by store credit cards might be attractive, Dvorkin, the Debt.com chairman, outlines three reasons to avoid these cards:

  1. Once a promotional offer expires, “you’re stuck with fewer benefits and higher interest rates than standard credit cards,” he says.
  2. You’re swamped by offers to spend more — both from the card itself and from other businesses that now have access to your contact information.
  3. You sign up for several of these cards to take advantage of the promotional benefits, but then you forget you’ve got the cards. That can lead to late payments, late fees and a lower credit score, Dvorkin warns. Riley, the Mercator executive, adds that it’s “silly” to amass a collection of store credit cards, as it becomes difficult to keep up with the various payments if you carry balances from month to month.

“If you’re diligent about seizing the initial benefits and then canceling these cards, you can extract some value from them. But if you’re the kind of person who forgets where you put your keys, avoid these like the plague that they are,” Dvorkin says.

Herman, the Consolidated Credit president, says store credit cards can help people with low credit scores establish credit, as the approval standards generally are more relaxed than those for traditional credit cards.

“If you spend wisely, pay off your balance every month and limit the number of cards you apply for, it can be a good way to maintain a revolving line of credit and keep your credit score climbing,” he says.

However, because of the high interest rates of store credit cards, “consumers can easily end up with a bill they can’t afford to pay off at the end of the month, which would negate the value of any rewards or discounts they’ve earned on the purchases,” Herman says. If that sounds like you, don’t bother with store cards, he adds.

Riley notes, though, that a store credit card can give someone a sense of accomplishment after that debt — for the purchase of car tires or a refrigerator, for example — has been paid off. However, he adds, store credit cards aren’t “a Swiss Army knife that’s great for everybody and has everything you need.”

See related: Can you transfer a store card balance to a credit card?

A general-purpose card may be all you need

Riley, Rossman and others suggest general-purpose credit cards as an alternative to store credit cards, as they tend to charge lower interest rates — and still might offer perks.

Rossman points out that the general-purpose U.S. Bank Visa Platinum Card, for instance, offers a 18-billing-cycle 0 percent intro APR (then 14.24- 25.24 percent variable), and it charges no annual fee.

On top of that, it doesn’t defer interest, as the Synchrony cards do. Therefore, any balance remaining at the end of the promo period would be charged as “forward-looking interest” — with a 14.74 percent to 25.74 percent variable APR — and wouldn’t go back to the beginning (like the Synchrony cards), Rossman explains.

No matter what kind of credit card you go for, Michelle Goeppner, director of credit product strategy at Chicago-based Alliant Credit Union, recommends doing your homework before submitting an application.

“It’s imperative to identify what is important to the consumer. Is it rewards? A low APR?” Goeppner says. “Consumers should always read the terms and conditions before applying.”

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