Should You Sign Up for a Store Credit Card Before Hitting the Black Friday Sales?

Ed Note: Think a store credit card offer might help you save some additional cash on your Black Friday shopping extravaganza? NerdWallet’s Matthew Ong (a Black Friday expert, we say) urges you to consider the pros and cons of applying. Happy shopping.

With Black Friday approaching, retailers are increasingly seizing the opportunity to cross-promote their store credit cards. Retailers will have more exposure to their consumer base during the holidays than at any other point during the year, and they’re getting creative in how to reward their loyal shoppers and market their store credit cards. Here are a few of this year’s more interesting examples:

  • Target will be granting Target REDcard holders exclusive early access to select deal items on Target.com beginning Wednesday November 21st.
  • Macy’s is offering Macy’s American Express cardholders a chance to win a $5000 Macy’s shopping spree if they make purchases with their cards throughout the holiday season.
  • Lowe’s registered cardholders got a bonus sneak peek at the Lowe’s Black Friday ad before it was officially released.

While these perks aim to capitalize off increased traffic to online and offline stores, inevitably the holiday season will wind down and these bonus cardholder benefits will disappear. If you signed up for a store credit card to take advantage of seasonal perks or get rewards off your big holiday buying list you’ll still be stuck with your store card well into the New Year.

To help you make the decision about whether a store credit card is a smart personal financial decision, let’s take a look at the ins and out of these retailer cards.

The Attraction of Store Credit Cards

The lure of store credit cards is simple – big rewards at your favorite store. This seems particularly appealing during the holiday season as shoppers begin budgeting up their expected expenses and start looking for ways to save at the stores they plan to shop at most.

Retail store credit cards typically net you 3 – 4% back on your buys at a particular merchant and sometimes 1% back on all other purchases.

Store credit cards offer special bonuses too. The Wal-Mart credit card, for example, offers a 15 cent per gallon discount on Wal-Mart gas, and the Bloomingdales American Express card will get you a free meal and drink after spending $100 at their restaurants.

The Problems with Store Credit Cards

Store credit cards often carry high interest rates. Both the TargetREDcard and the Wal-Mart credit card come with a 22.9% APR. The American Eagle store credit card comes with a 23.99% APR, as does the Gap credit card. If you’re not sure you can pay off your bills in full every month, be wary of using store cards and racking up debt.

You also won’t get much back for signing up for these cards. Store credit cards offer notoriously low signup bonuses.

The Bottom Line for Shoppers

If you’ve been following along, it’s probably clear by now that the attractions of store credit cards almost never outweigh the pitfalls of these cards.

Getting 3 – 4% back at your favorite store might be tempting, but remember that there are plenty of rewards credit cards that can match or beat their store credit card rivals. Here are a few of the top rewards card options and some reasons why they’re often better than store credit cards:

Chase Freedom

  • No annual fee
  • $100 signup bonus
  • 5% rewards on rotating bonus categories (with a $1,500 cap in bonus spending per quarter). The categories in 2012 were:
    • January – March: Amazon.com and gas
    • April – June: grocery stores and movie theatre
    • July – September: gas stations and restaurant
    • October – December: airlines, hotels, Best Buy and Kohl’s.

American Express Blue Cash Preferred

  • 6% back on groceries, and 3% at department stores and gas stations
  • An annual fee of $75
  • $150 signup bonus

Looking at these stats, you can tell that buying at Best Buy with the Chase Freedom from October – December would actually get you better rewards at the store than Best Buy’s own store credit card. And that’s not to mention APR, signup bonuses or access to better rewards at other stores. For all these reasons listed, a rewards credit card is often a much better choice than a store credit card.

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