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Applying for a store credit card is rarely a smart financial move. These cards almost always come with sky-high purchase interest rates — as high as 25.24 percent for some major store cards — and limited use. You can use many of these cards only at their namesake department stores.
Still, stores are clever about getting consumers to apply for their cards. They’ll bombard them with advertising. Store cashiers will promote their store cards heavily, hoping to earn bonuses for signing up unaware shoppers. But most intriguing of all to potential card members is the no-interest-for-90-days offer. You’ve heard this spiel: You purchase a new flat-screen TV at Sears with the Sears Credit Card and you won’t have to pay interest on this pricey purchase for 90 days. Or maybe it’s a new laptop computer at Best Buy or a high-end watch at Macy’s. Problem is, the no-interest offer comes with a catch. Don’t be surprised; we are talking about store credit cards here.
That catch is known as interest backdating, and it works like this: If you don’t pay off your entire purchase before the no-interest period ends, you’re going to get stuck paying interest on it. And you won’t pay just some of the interest. You’ll pay all of it. If you don’t pay off your purchase during the interest-free period — whether it be 90 days or longer — you’ll soon receive a nasty surprise: The interest on the purchase will be backdated to the date of the original transaction then added onto your balance.
The only way, then, to avoid paying interest on your purchase is to pay it off entirely within the no-interest period. This is fine if you know that you can do this. But if you have doubts? Be ready to shell out those interest payments if you’re not sure of your ability to fully pay off that new refrigerator or that fancy new smartphone.
You might cry foul when you see that interest suddenly appear on your store credit card statement. But there’s not much you can do about it. Interest backdating is perfectly legal. Stores will disclose the practice in their credit card agreements. Of course, few consumers actually plow through these densely worded agreements. That, though, isn’t the fault of the credit card issuer. That’s the fault of us, the consumers.
Here’s a simple piece of advice: If you want to avoid interest backdating, avoid store credit cards altogether. You’ll almost always do better financially by taking out a general rewards or cash-back credit card issued through a bank or financial institution. For one thing, you can use these cards at just about any location. Secondly, they almost always come with purchase interest rates and fees that are lower than those attached to department store credit cards. The rewards programs offered by general credit cards are usually far more generous than are those attached to store cards.
CreditShout, in fact, can’t think of a single good reason to take out a store credit card. Do the right thing, then. Avoid the temptation to apply for your favorite store’s credit card. Instead, looking into the ever-competitive world of rewards and cash-back credit cards. You might be surprised at the generous reward programs available to you.