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More Americans applied for a store credit card during the 2019 holiday season and fewer got rejected, according to a new report from CompareCards.
However, less than a third of those with a new store card expect to pay the first purchase off in the first month. That’s a big drop from the previous holiday season, and another sign that Americans aren’t feeling as good about their financial situation as they did a year ago.
- 37% of Americans applied for a store credit card this past holiday season, up from 28% the previous year.
- Just 28% of those who got a new store credit card during the holidays expect to pay their first purchase off within a month. That’s down from 49% in the previous year.
- 14% of those who applied said they were pressured into it by the cashier. The most common reasons for applying? Fifty-four percent said they did so to take advantage of a special discount, and 27% said they didn’t have the funds to otherwise pay for holiday shopping.
- Men were nearly twice as likely as women to apply and be approved for a store card this holiday season. 40% of men said they done so versus just 22% of women.
It’s almost impossible to navigate the holiday season without being offered a store credit card. Whether you’re shopping online or in a brick-and-mortar store, you’ll see ads offering you discounts, special financing and other perks to entice you to apply.
Used wisely, many of the cards really can save you money and get you benefits that may not otherwise be possible. The problem is that they often come with sky-high interest rates, myriad fees and confusing fine print, and far too few Americans take the time to understand what they’re getting themselves into before they apply.
With that in mind, CompareCards asked Americans whether they had applied for a store credit card during the 2019 holiday season. It’s the second straight year that we’ve done this survey, and this year’s results were troubling. Not only are more Americans applying for store credit cards, far more who got them say they won’t be able to pay their first purchase off in under a month.
That means that more Americans will still be paying off their holiday debts when February and March roll around. It also means they’re in danger of having interest payments outweigh any perks and savings they got when they signed up for the card.
More applications, fewer rejections
Generally, store credit cards are easier to get approved for than other credit cards. Retailers know that if someone signs up for their store’s credit card, they’re far more likely to be a repeat customer. And since stores aren’t in the business of turning customers away, they work with issuers to make their cards available to a wide range of consumers.
That makes them an appealing choice for folks who are just getting started with credit as well with those who are rebuilding their credit. However, it is also the reason why the cards are more likely to come with lower credit limits, higher interest rates and fees. The riskier the borrower, the higher banks will make rates and fees in order to insulate themselves against that risk.
More than 3 in 10 Americans (31%) successfully applied for a store card during the holidays, while just 6% had their application denied. During the 2018 holiday season, those numbers were 19% and 9%, respectively. That means that if you applied for a card this holiday season, your chances of getting it were even better than last year.
If you apply, proceed with extreme caution
There’s no denying that retail credit cards are popular. Even with the high APRs and lower credit limits, Americans still can’t resist them and the promise of a big discount or exclusive access. And it isn’t just one subset of Americans: 51% of millennials applied, as did 43% of Gen X, 57% of parents of kids under 18 and 45% of men.
There’s also no question that when used wisely, they can often save consumers real money. If you can pay your purchases off quickly, those big discounts and special financing offers can be a good deal. The problem, however, is that far too many people carry a balance on these cards, and the problem is getting worse.
- Only 28% of those with a new store card expect to pay their first purchase off in under a month. Last year, that number was 49%.
- 29% expect to pay it off in 2-3 months, up from 19% in 2018
- 23% expect to pay it off in 3-6 months, up from 15% in 2018
- 15% expect it to take more than six months, up from 11%
- 5% said they have yet to make a purchase with the card
That’s a large jump in the number of cardholders who expect to carry a balance for a least a few months, and that’s troubling. Job No. 1 for anyone with a credit card is to pay your balance off as soon as possible, especially with retail cards which typically have interest rates that are significantly higher than those of general-purpose credit cards.
The average retail card APR is 25.41%, and you don’t have to be an accountant to understand that a 15% discount on a purchase doesn’t matter much if you must pay 25% in interest to get it.
Americans’ confidence in paying off card balances is decreasing
While the growth in people carrying a balance is troubling, perhaps it shouldn’t be surprising, given that we have seen a decrease in Americans’ confidence in their ability to pay their credit card bills in full.
According to the CompareCards Credit Card Confidence Index, just 44% of cardholders were “very confident” they could pay their cards’ monthly statement balance in full in December. That’s up from recent record lows, but still down from December 2018.
If you’re struggling with credit card debt already, it’s probably wise to steer clear of retail credit cards. The math just doesn’t work in your favor if you regularly carry a balance.
If you do take the plunge, however, be smart about it. Before you apply, make sure you understand some of the basic details of the card – rates, fees, deadlines, etc. Once you have the card, consider paying that card balance off first. Chances are if you have multiple cards, your store card will have the highest APR.
And finally, if you have good credit, consider moving your store card balance to an introductory 0% APR balance transfer credit card. It can be a great way to keep interest from piling up too quickly, allowing you to pay your debt often sooner than you thought.
CompareCards commissioned Qualtrics to conduct an online survey of 1,120 Americans, with the sample base proportioned to represent the overall population. The survey was fielded Dec. 20-23, 2019.