Finance

Tempted by Store Credit Card Rewards? Watch Out for Sky-High Interest (Trap 7)

April 14, 2025
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Note: This is part of our series on credit card rewards traps. Check the end of this article for links to more pitfalls.

Remember the last bullet that we dodged?

Paying Annual Fees for Credit Card Perks? You Might Be Throwing Money Away (Trap 6)

Think a store credit card offering instant savings at checkout sounds like a great deal? Hold onto your wallets—these cards often come with some of the highest interest rates around, cleverly disguised behind immediate discounts and tempting perks. Banks and retailers team up to make these offers irresistibly convenient, knowing full well you’ll likely end up paying much more in interest than the discount was ever worth.

This trap is a bit different from the mainstream travel or cashback cards, but it’s one many Americans (particularly young or low-income consumers) encounter. You’re at a retail store checkout, and the cashier says, “You could save 20% on today’s purchase by opening our store credit card!” That instant discount is the “reward” bait. Store-branded credit cards are easy to get and often tout perks like discounts or special financing, but they come with pitfalls that issuers and retailers love because they make a lot of money off unsuspecting new cardholders.

Motivation:

Retailers partner with banks to issue these cards to boost sales and loyalty. The bank and store both profit from interest and fees. They figure if you have their card, you’ll be motivated to shop there more (to use that 5% back or whatever) and less likely to shop at competitors. Plus, store cards often have exorbitant interest rates – higher than general-purpose cards – sometimes 25-30% APR . That’s money on the table if you don’t pay in full. And many people don’t, especially if they opened the card on a whim for a discount and then can’t pay off that big purchase immediately.

Implementation:

The easy approval is key. Store cards are notoriously easy to get (even with average or below-average credit) – that’s why college students and credit newbies were historically targeted with free pizzas and t-shirts on campus to sign up. (Thankfully, some of those practices have been curbed by law, but the lure remains.) They often come with a deferred interest financing offer: “No interest for 6 months on purchases over $500.” Sounds like free financing, but the fine print usually says if you don’t pay off the full balance by 6 months, you’ll be charged all the back interest from the purchase date at that sky-high rate. Many people either misunderstand this or simply can’t clear the balance in time, and bam – a huge interest charge hits, erasing any benefit from that “no interest” period or the initial discount. Even without special financing, the card might give you small perks (like 5% off at the store, or $10 rewards coupons for every $X spent), which encourage you to spend more at that store. Meanwhile, any carrying of a balance is extremely costly. Some store cards also have low credit limits (maybe $500), so it’s easy to max them out, which can hurt your credit score (a maxed-out card looks risky on your report) – another hidden consequence.

Why it’s hard to detect:

At the checkout counter, you’re thinking about those jeans or that new TV you’re buying, not the long-term cost. The immediate gratification of a discount or an on-the-spot approval is powerful. The clerk usually doesn’t have time (or incentive) to explain the fine print like “deferred interest” or the exact APR. Many consumers, especially younger ones or those not financially savvy, assume a rewards store card is like any other credit card – they don’t realize it might be more dangerous to carry a balance on. The sales pitch emphasizes “savings” and “rewards” – who doesn’t want to save 20% today? It takes self-discipline to say no in that moment. And if you do get the card, you might only later notice how high the interest is, or that you inadvertently got a hard inquiry on your credit report (opening cards affects your credit score a bit).

Real-world perspective:

The CFPB has noted that store credit cards often charge significantly higher interest than regular cards . They’re a big reason some people end up in deep credit trouble . For instance, a young adult furnishing a first apartment might open a store card at a furniture retailer to get 0% for 12 months. A year later, due to tight finances, they still have a balance – and suddenly get hit with all 12 months of interest at 29.99%. It’s a nasty surprise, essentially a retroactive trap. Or consider a low-income shopper who opens a store card to afford holiday gifts, thinking the 10% discount and loyalty points are helpful – but then they can only pay the minimum, and those gifts end up costing double by the time it’s paid off.

Who’s most affected:

People with limited credit options (who might not qualify for prime rewards cards) often turn to store cards as a starter. That includes a lot of young people and those rebuilding credit. The irony is these cards can hurt them the most due to high rates. Also, impulsive shoppers of any demographic can fall prey if they can’t resist the point-of-sale offer. Our advice as an industry insider friend: if you do take a store card for a one-time discount, treat it very carefully. Pay it off immediately, maybe even consider not using it beyond that initial purchase. In many cases, a good general cash back card is safer and even cheaper in the long run than a wallet full of store cards. As one financial advocate put it, “Freebies are anything but a good value if you end up in debt.” The convenience and perks of store cards aren’t worth much if they lead you into a high-interest trap.

Don’t let this be your last stop—explore more sneaky credit card traps and stay ahead of the game