Department Store Credit Cards

In Canada, many department stores offer store credit cards in an attempt to get you to buy from their store. While these can be tempting, they can come with many drawbacks.  Like any credit cards, department store credit cards can carry high interest rates or fees.

How do department store credit cards work? When a store offers a store credit card, they typically offer a one-time discount or an interest free period. A one-time discount might seem like a great deal, but interest will overtake any savings in the long run.  As for an interest-free period, things are a bit different. With department store credit cards that offer no interest for a set period of time (1 year for example) you are only required to make payments on the balance (a minimum payment) but are not charged interest. If you are able to pay off the total balance within that year, you don’t pay any interest. However, if you cannot pay off the entire balance, you are on the hook for interest.

Take this example. Say you go to a department store and purchase a new spring wardrobe that costs $1000. The store clerk offers you a 10% discount if you apply for a department store card and charge your purchase to it.  Little do you realize that the department store card bears an annual interest rate of 25%. A month later you use that store credit card to make a bigger purchase, such as a home appliance, adding an additional $2000 to the card. If you pay that entire $2900 and don’t charge anything else to the card, you don’t pay interest. When you see the bill with your charges and interest added you may determine it is way too much to pay off in full and decide to make minimum payments and thus the cycle begins. Beware of being offered gifts or discounts in exchange for applying for credit – anything too good to be true probably is.
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In the end, department store credit cards are only a good idea if you are sure that you can pay them off entirely before the interest free period is up. If not, department store credit cards are a very bad idea, especially if you are already in debt.

If you are in debt because of department store credit cards, just as with any type of credit card, it can be very tough to get out.