By Jim Donovan:   Like clockwork, each January I have a tendency of doing a lot of credit card related stories.  I find that once the holiday credit card bills start coming in, people are more apt to listen to what I am saying as they panic at the site of all their additional debt. 

The other day I happened to be at Macy’s and the sales clerk was asking a woman at checkout if she wanted to apply for a store credit card.  It kind of took me by surprise, but the customer turned around and asked me if it was a good idea to get the card.  (Surprised because I was wearing sunglasses and a baseball hat, I guess I should be glad that I wasn’t doing an undercover story!)   I answered her with a question, “Do you pay off your credit card bill in full, EVERY month?” 

While the idea of saving 10-15% when applying for an instant store credit card sounds great,  it probably isn’t the smartest thing to do for most people.  That’s because most retail store credit cards come with interest rates in the 23% to 30% range.  (Macy’s for example has an APR of 24.50%).  Those rates are much higher than you’ll find with most bank credit cards which average around 14%.  

Retail cards, also known as private label credit cards, carry higher interest rates than bank-branded cards because they tend to be held by riskier borrowers with fewer credit options., is a site that I often refer to when I do credit card stories.  It allows consumers to compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates.  Here are some of the things they say about store credit cards:

* Extraordinarily high interest rates applies to every applicant, no matter your credit score. If you use the card to pay for a purchase and know you can’t pay it off, you should add in the cost of your interest penalties to the price of your purchase. If your interest rate is 29.99% on a card with a $500 balance and you just make the $20 minimum monthly payment, it will take three years to pay off your balance and you will pay $295 in interest payments. Instead of paying $500 for the purchase, you are paying almost $800.

* Retail cards can pull down your credit score. Retail cards usually have low credit limits since merchants want to minimize their financial risk. If you carry a balance, this will increase your credit-utilization ratio which is an important factor in your credit score.

* If you apply for multiple retail cards, this can can also pull down your credit score for two reasons. Opening these store accounts will lower the average age of the cards in your credit history, and the length of credit history accounts for 15% of your credit score. Secondly, every time you apply for a card, the issuer may pull your credit score which is a “credit inquiry”. Too many credit inquiries can lower your credit score.

Now if you pay your credit card bill off each month in full, ALL THE TIME, then the higher interest rates won’t really matter.   In full disclosure, I have a Macy’s card, but I only use it when I know I can pay the bill in full.   If you can’t do the same, then I suggest that you use a credit card that you already have, or better yet, wait until you have the money to make the purchase using cash.   You’ll thank yourself later.