Fewer Consumers Plan on Applying For Store Cards This Shopping Season
As October begins and the holiday shopping season draws nearer, it looks as though fewer consumers plan on applying for store credit cards. According to a recent LendingTree survey, 29% of respondents say they’re likely to open a store credit card this year. That’s down significantly from last year where 44% of those surveyed suggested they were considering one. However, while this result did mark a three-year low, it is up from the 24% response in 2018.
In some good news, fewer consumers who already have store credit cards report carrying debt on such products. Of those with store cards, one-third said they still carried a balance on them. Compare that to 2020 when nearly half (49%) said they had debt on their store cards.
Although store credit cards may seem attractive to consumers in the moment, there are some notable downsides. For one, while some stores do offer products that utilize the Mastercard, Visa, or American Express networks, other “private label” cards can only be used at the store where they were issued. Furthermore, store cards tend to have low limits, leading to larger utilization rates that can hurt a customer’s credit. Finally, despite the one-time discounts typically offered by store credit cards, their bonuses often pale in comparison to welcome bonuses featured on regular credit cards.
Elsewhere, beyond store credit cards, many retailers are now offering a different financing option to shoppers: “buy now, pay later.” Through partnerships with Klarna, Afterpay, Affirm, or other platforms, retailers allow consumers to apply for instant financing, typically paying one-quarter of the price upfront and making subsequent payments in the weeks that follow. LendingTree’s survey found that 21% of respondents were likely to try BNPL services this shopping season. Interestingly, the site notes that, of the 126 retailer websites they reviewed, 67 offered a store credit card while 53 offered a BNPL (40 offered both).
Commenting on the survey results along with the good and bad of these financing options, LendingTree’s chief credit analyst Matt Schulz said, “Store credit cards and ‘buy now, pay later’ loans can both be useful tools if used wisely. They can offer some much-needed short-term flexibility for families that might need a little bit of help stretching their budget.” He continued, “However, like many financial tools, they’re also dangerous when used carelessly or recklessly. Take time to research and understand what you’re getting into.”
Ultimately, while store credit cards may make sense for some consumers in certain situations, there may be better options out there. Thus, it’s likely a good thing that fewer shoppers are considering such products this holiday season. That said, those looking to be rewarded for their holiday spending and are prepared to pay off their balances may wish to check out cashback cards that may make sense for them this shopping season.