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The ups and downs of store credit cards

LAWRENCEVILLE

Holiday shoppers are accustomed to certain traditions, including the day-after Thanksgiving rush, hearing "Jingle Bells" in the mall and long lines to see Santa.

Another custom is the store credit card offer - and discounts that come with it.

But, as popular as store-issued credit cards have grown - Bloomingdale's and Macy's opened 3.1 million charge accounts last year - consumers should be aware of the downsides.

One pitfall is a lower credit limit than cards issued by Visa or Mastercard, said Helga Cuthbert, who owns Touchstone Financial Guidance in Decatur.

Typically, $1,000 is the maximum credit line compared to at least $10,000 on bank cards like Visas. Low credit limits aren't necessarily bad, but they do allow consumers to "max out" their credit lines quickly.

That's especially important during the holidays, when it's easy to spend $600 in an afternoon of mall shopping.

The problem comes when the ratio of debt to available credit gets too high, too fast. That hurts credit scores.

It's a red flag to creditors, who may think the consumer has run into money trouble and is trying to get by on credit alone, said Greg McBride, a senior financial analyst with Bankrate.com, an online resource of financial data and advice.

Store credit cards have another disadvantage - typically higher interest rates.

It's common to see rates as high as 20 percent, while traditional credit cards usually average 13 percent," McBride said.

Despite a few downsides, store-issued credit cards carry benefits for retailers and consumers alike.

Retail chains use their credit cards to build brand loyalty, said Eugene Fram, marketing professor at Rochester Institute of Technology in New York.

In an era when consumers are bombarded by advertising online, through the media or even on their cell phones, "customer loyalty is more important than it has been in recent years for the simple fact that there is so much differentiation," Fram said.

"There are so many more options, so retailers must be able to target the consumer."

Customers opening store credit accounts are made to feel privileged, often by discounts on merchandise or invitations to members-only sales.

Cingular recently gave Fram a $50 credit card as a rebate. Jos A. Bank Clothiers named him to their "executive group," giving him 20 percent off his favorite shirts.

"Reinforcing brand loyalty," Fram said, is the name of the game.

During the holidays - the most critical period for retailers - stores are especially quick to roll out credit incentives.

Macy's allows shoppers to join its "Thanks for Sharing" program for $25. In return, they get 10 percent off holiday purchases, and Macy's donates a portion of the proceeds to

charity.

Discount chain Target offers a deal in which if customers spend at least $250 on their store credit card by Dec. 24, they receive a 10 percent discount, whether online or in the store, on a January shopping day of their choice.

Store-issued credit cards have been around for decades, but they lost popularity in the '90s when interest rates rose. Not only have they regained their favorable standing, but the electronic age is creating new credit card technology, said Tom McMahon, executive vice president of EPX, which developed the first Internet-based payment system.

Credit cards that use radio frequencies instead of magnetic stripes are already on the market. The innovation means consumers no longer have to swipe their cards. They just flash them toward a credit card scanner, making transactions even faster.

"The shift from paper to plastic continues," McMahon said. "The world is moving to the electronic age - and all the benefits that come with it."