The holiday shopping season is around the corner and it's the time of year when you may be enticed to sign up for a store credit card to receive discounts on a purchase.
But you may want to think twice before you do it.
Applying for a store credit card to get a discount on what you were buying at the checkout can be a tempting offer, but "don't apply impulsively," said Ted Rossman, an industry analyst at CreditCards.com.
"We found that more than six in 10 Americans have applied for a store credit card and more than four in 10 did so on the spur of the moment at checkout," he said. "That's a bad idea that can cost you money in terms of interest, fees. It can hurt your credit score."
Rossman said many store credit cards charge high interest rates, which can lead to trouble down the road.
"The average rate that we found among store cards was over 24%," said Rossman. "The highest we found were 29.99%. Those are super-high rates."
Before you sign up, read the fine print. Review the advertised APR on a retail store card before you open an account and consider your ability to pay off the balance in full.
Think about the sign-up bonus. Make sure you're not accepting a small discount on your purchases in exchange for a high APR. Down the road, the items you bought could end up costing you more than the retail price.
Also, watch out for deferred interest offers. You may not have to pay interest for a year, but if you don't pay the full amount of money you owe in that time period, you can be hit with hefty retroactive interest charges.
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However, if you frequently shop at a certain store, can pay your bills in full and avoid interest charges, a retail card might make sense for you.
"Some store cards are really good, if you’re loyal to them," said Rossman. "They give you 5% cash back every time you shop at Amazon, Target, Best Buy or Ann Taylor -- that can be worth it if you’re loyal. Some stores like Macy's and Nordstrom will throw in additional coupons. They’re going to reward their more loyal customers, and if that describes you and you can avoid interest that may make sense."
Rossman says store cards can help you build or repair your credit, since they have looser credit requirements. Just be sure to pay your bills in full each month and not to max out your cards.
"Your credit score is also largely affected by credit utilization," said Rossman. "Credit you’re using divided by credit available to you. A lot of store cards have very low limits and that can be bad for your credit score, because it's easy to max it out."
If you're having trouble paying any of your credit card bills, make sure you reach out to your credit card issuer immediately and ask about their hardship programs to avoid any negative consequences.