Over the years, various types of stores have started to offer a store credit card to increase shopper loyalty and raise the amount of each sale. Department stores were first to offer credit cards that could be used only in their stores. The next phase of store credit was initiated by retailers of furniture and appliances that offered interest-free periods to make purchases easier for shoppers. Many stores offer credit accounts for loyal shoppers and use the accounts to retain customers and win new customer through various techniques that are meant to entice people to visit the store frequently. Compare credit cards online for FREE with our comparison tool!
When a store credit account is available, people are known to spend more every time they visit the store. This trend is leveraged by stores to increase their sales throughout the year. Making money is their goal and offering credit accounts to shoppers is one of the fastest ways to increase profit. Smart shoppers are aware of this and will use store credit sparingly.
What are store credit cards?
Store credit cards are tied directly to a single store for use to purchase items on a credit account. This type of card can be used at the store to complete purchases on the terms that the store has set forth. The store will decide which shoppers are qualified to carry the credit account and will exercise the freedom to close any credit account. Regulations allow the store to notify the customer and close the account if the credit agreement has been violated. Credit accounts are different from loyalty programs that shoppers use to earn rewards for frequent purchases.
Advantages of Store Credit Cards
Stores that offer credit accounts to loyal shoppers offer benefits designed to bring people into the store to buy merchandise more often than they would otherwise. Immediate benefits for the shopper on the store credit account will generate impulse purchases that may or may not be affordable for the consumer. Once the account is opened, the advantages will disappear quickly, and the expense of the account will be realized by the cardholder.
- Build Credit History – The qualification criteria for most store credit cards are simpler than those of a bank credit card. Some stores do not run a credit check for shoppers to be able to qualify for their credit accounts. If a shopper must build or re-build a credit history, store credit cards can be a useful instrument.
- Initial Discounts – Large purchases can be more affordable when the store credit card offers a discount on the first purchase made with the card. Strategic use of initial discounts can be very beneficial for the savvy shopper.
- Early Sale Notification – Stores send sales flyers and coupons to the credit cardholders of their store credit card. These special offers will bring a steady stream of loyal shoppers into the store and sustain the revenue stream through slow seasons. Special events are timed to lengthen shopping seasons and remove the sales spikes that are experienced close to major holidays.
- No-Interest Period – Large ticket items are more affordable for shoppers when the store will carry the credit and allow payments to be made. The savvy buyer will repay the entire balance before the interest is added to the account at the end of the grace period.
Traps Associated with Store Credit Cards
Experience has proven that most of the advantages of carrying a store credit card are offset by the stark expense of the card. Shoppers learn to read the fine print in the account documentation and minimize the impact of the traps associated with having too many retail credit cards open at the same time. All account costs must be provided to the cardholder when the account is opened and whenever changes are made to the agreement. Use our credit card chaser and compare credit cards online!
- Exorbitant Interest Rates – Annual percentage rates on store credit cards can exceed 25 percent, so the amount of money that was saved on the initial purchase will be paid in interest if the balance is not paid off immediately. Store credit cards are regulated differently than bank credit cards. Care must taken to avoid late payments which can cause the interest rate to jump even higher.
- Poor Credit Shoppers – Since the application process for a store credit card does not always include a credit report, people with poor credit will be given an account they might not be able to afford. A person who is unable to repay the credit balance will incur additional charges that make the account even more unaffordable.
- Low-Income Exploitation – Shoppers that cannot afford to pay cash for items offered in the store will apply for a credit account. When approval is given, the shopper might run up a balance that cannot be repaid. This type of misuse of credit is said to be the responsibility of the shopper, but the store does have an ethical obligation to avoid exploiting those with low incomes.
- Blind Loyalty to Retailer – A store credit card creates an obligation on the part of the shopper. Availability of store credit entices the cardholder to return to the same stores repeatedly even if another store offers better prices. The store’s goal is to create this type of blind shopper loyalty, and the customer must recognize this trend.
- Credit History Impact – Just as careful use of the card can build the credit history, misuse of the store credit card can impact the credit history negatively. Missed payments will be recorded on the credit history. Delinquent store credit accounts are viewed in the same way that delinquent bank credit accounts are viewed by the credit bureaus.
Smart Use of Store Credit Cards
Wise shoppers follow certain practices to make sure that every store credit card is an advantage to their own wallet. Stores do not appreciate customers who follow these recommendations because the revenue stream from credit accounts is removed. Experience with retail credit cards is the best way to master certain techniques and avoid unnecessary expenses that are associated with using store credit. One of the most important actions a shopper can take is to read all of the documentation prior to opening the account.
- Leverage Initial Discounts – Strategic use of the discount that is offered to open a store credit account can save a great deal of money on large purchases. Instead of opening an account the first time a salesclerk asks, delay the application until a major purchase is made, such as a major appliance or a home improvement project.
- Repay Full Balance – When the bill arrives, write a check for the entire balance on the account. This commitment will prevent purchases that are not affordable within the monthly household budget. Stores make the majority of their profit from customers that roll the credit balance from month to month.
- Monitor Sales – Stores that offer credit accounts will require use of the card to use additional discounts during sales. Shoppers that time purchases to coincide with sales and additional discounts will have money set aside to leverage the sales and use the store credit card appropriately. Repayment of the entire balance will retain the sales dollars without losing the money saved to paying interest.
- Restrain Purchases – Store credit cards cannot be used to stretch the household budget. Even a sale item will not result in savings if the purchase is too large to fit within the budget and allow for full repayment of the balance. Interest charges can reverse savings on an item if the balance remains on the card past the end of the first billing cycle.
- Emergency Purchases – If a major appliance must be replaced quickly, strategic use of a new credit account can make the purchase more affordable. Research that is performed prior to the purchase will provide useful information about the store credit account and the options to leverage interest-free periods and initial discounts.
Final Store Credit Card Tips
Use of credit is one of the financial traps that can become a burden for the individual who cannot afford basic necessities. A simple application process can lure shoppers to open a credit account and then cause financial hardship when the first bill is received. Store credit cards are one of the strongest sources of revenue for companies and are not intended to save money for most customers. While every shopper would like to be included in the special sales and discounts, savvy shoppers will avoid opening credit accounts unless the balance can be repaid immediately.
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