Store cards have been declining in popularity in recent years, with use falling consistently in the last decade. However, reports show an unusual increase in interest in signing up for store cards for credit in the run-up to the holiday season.
According to a survey carried out by CompareCards, 44% of American consumers said they would consider signing up to one this year – 32% higher than the figures in 2019.
What’s behind the rise?
Store cards are provided by retailers, alongside a credit supplier like Visa or Mastercard, and can be used to pay for goods at a particular company. A lot of the time, the card holder will receive special discounts on purchases or other deals and promotions.
Despite many people avoiding store cards, often due to regretting having them in the past and accumulating debts, many people are, strangely, going back to them.
Why? The authors of the study note that two key changes have occurred: the interest rates have fallen on store cards (even though they are still higher than regular credit cards), and consumers need easy access to credit due to the coronavirus pandemic.
In these uncertain times, credit card companies have tightened their lending criteria and, in some cases, lowered credit limits or closed accounts due to the risks of widespread unemployment and customers potentially losing their income.
How will this affect consumers?
The figures show more consumers turning to store cards during the health crisis. But, with many already struggling to pay back debt, how will this affect them in the long-term?
Branded store cards are much easier to get than other lines of credit – and they have much higher rates of interest. Often, sales clerks will try to sign people up at the checkout by offering them rewards, which are rarely generous financially.
However, due to improvements in the reward systems, such are tiered systems to earn with higher spending, store cards are becoming more attractive to customers.
It’s important that consumers consider the higher interest rates. Even though the rewards are real, a high balance can wipe them out pretty quickly. Surveys show many people with store cards are carrying a high balance. When using these cards, it’s important to consider this first.