In the past, many consumers may have been offered store-branded credit cards that came with a single perk: a one-time discount of somewhere between 10 and 30 percent on their purchase that day. But that trend is now changing.
Retailers are now recognizing consumers' changing credit card borrowing habits and trying to entice them into spending more on their branded accounts by giving a larger number of more valuable perks to borrowers, according to Consumer Reports Money Adviser. Among the myriad benefits many national retail chains are now offering for their store-branded cards, the most popular seem to be cash back rewards and special sales open only to cardholders. However, many are also granting consumers discounts on purchases at the stores and associated businesses, as well as low introductory interest rates for the first several months the new account is open.
The benefit of these cards for consumers who regularly shop at the stores that issue them is obvious: They will incentivize purchases the shopper would have already made, making them more affordable, the report said. But at the same time, because most of these cards are issued by major payment processors like Visa, MasterCard and AmEx, they can also be used elsewhere and, in many cases, earn rewards in much the same way as purchases at the chains that issued them.
However, it's also important that consumers keep in mind that these cards don't always behave like those issued by standard financial institutions, the report said. For one thing, the interest rates on these accounts are typically quite high when compared to traditional cards, and there may be more restrictions on how consumers can earn their cash back or rewards points. The Walmart card may be advertised as granting consumers 1 percent cash back, but in reality, it will only grant them 0.25 percent cash back for the first $1,500 they spend on the account, and just 0.5 percent back once they exceed $3,000 in spending in a given year.
In other cases, there may be a strong introductory rate, such as 0 percent for the first six months the account is open, which can be crucial to helping shoppers afford a major purchase they otherwise might not be able to afford out of pocket, the report said. But some of these cards also will charge interest retroactive to the purchase date if the balance is not paid off in full at the end of that introductory period.
Consumers should always take the time to review any offer they receive closely to make sure they fully understand all the costs that may come with such a purchase. Typically, they may carry interest rates or terms that could make them more or less desirable than others that are available to a prospective borrower, and comparing and contrasting a number of accounts will be most beneficial.