Think Twice About Store-Branded Credit Cards

Q. What are the pros and cons of opening store-branded credit cards for my holiday shopping?

A. The primary advantage is that familiar pitch you hear this time of year, especially when you're carrying an armful of gifts: "You'll save 10 to 15 percent off the day's purchases if you open a store credit account." You may also be told there will be no annual fee, special "cash back" rewards and notifications about sales down the road if you hold the store-branded card.

But before you sign up, recognize the potential pitfalls.

• With interest rates as high as 25 percent, the one-day savings can quickly vanish — and then some — if you carry a balance. If the store card touts a "no-interest" period, consider the date that promotion ends and your likelihood of paying off any balance by then. If you don't pay, you could face steep interest charges dating back to the purchase date.
  
  

• Many store cards are co-branded with a Visa, MasterCard, American Express or Discover logo for use outside the store. But you won't necessarily get generous rewards at other retailers. For instance, L.L. Bean's Visa card offers 3 percent back on Bean merchandise, but only 0.5 percent back elsewhere. And "cash-back" offers may not actually get you cash, but a coupon redeemable for merchandise at the store.
  
  

• Your credit score might take a hit. Because store credit cards typically have lower credit limits than traditional plastic, they can hurt your credit utilization rate — the ratio between balances and credit limit. Also, getting many new cards at once can reduce the average "age" of your accounts, dinging your score. And multiple inquiries into your credit history (conducted by the cards' issuers after you apply) in a short period may also hurt.
  
  

The bottom line: Store-branded cards are great for loyal shoppers who pay on time and in full but even they should choose judiciously.