You’ve heard the pitch a dozen times. As you are about to finalize your purchase of clothing, furniture, equipment or some other retail good, the clerk makes you an enticing offer: “How would you like to save 20 percent on your purchase today?”

All you have to do for instant savings is to open a store-brand credit card and charge your purchase to it. If you’re in a hurry, you quickly pass up the offer, because you don’t want to spend the time that it would take to complete an application. But if you’re holding a piece of expensive merchandise, the gambit can sound awfully tempting.

It’s no surprise where I’m going with this. Like so many financial products out there, store-branded credit cards can seem like a great deal at the time that you open one. But they’re no great deal at all. Like any product that adds debt to your life, they’re dangerous. And once you look at the terms of the deal (which nobody does when standing at the register), the numbers make it clear — store-brand credit cards are a debt rip-off.

The world of financing is full of bum deals. Some of them are outright heinous: Payday lenders, title lenders and the ilk use despicable practices to prey on the poor. Not far behind them are other rip-off agents, including several online operations that offer loans at crazy-high interest rates. Major retail chains and their credit cards are too respectable to engage in the worst of these practices. So rather than dupe the poor with the promise of quick money, they hook the middle class with the promise of a discount.

The truth, though, is that most store-branded credit cards won’t save you any money in the long run. If they did, the retailer wouldn’t offer them. Here are four reasons why these cards are a bad deal.

1) High interest rates

On a typical credit card offered by your local bank (your Visa, Mastercard, etc.), the average interest rate hovers around 12.5 percent, depending on your creditworthiness. But the rates on many store-branded credit cards can be twice that, coming  in around 25 percent. An interest rate that high is dangerously close to the “sub-prime” rates offered to low-income borrowers. It’s also conveniently larger than the initial discount that you got for first signing up. Think about it: If you got 20 percent off of a large purchase by putting it on the card, and yet you pay 25 percent in interest over the year that you spend paying off the balance, you’ve actually spent more on the item then you would have without the discount.

2) Big fees and unfriendly terms

Store credit cards sometimes have attractive terms, such as a certain period of time during which they don’t charge you interest on your purchases. But behind that bait is a hook — these cards often have very strict, very expensive terms that include high fees for late payments and other small mistakes. Many cards will ding you $30 or more for simply being a day or two late in sending your payment (a mistake that can happen to anyone, even the most creditworthy people). One $30 late fee wipes out the entire discount that you got on a $150 purchase with the card. And if you happen to miss a payment on an “interest-free financing” deal, your zero-percent rate will instantly evaporate, and you’re likely to get charged back interest for months that you did pay on time.

3) Damage to your credit score

Opening store brand credit cards can do significant damage to your credit score. While the math behind credit scores is incredibly complex and includes a host of factors, the basic idea is this: The more lines of credit that you have open, and the bigger the balances that you carry, the lower a credit score you’re likely to have. Opening new store cards affects both of those metrics. And while one store credit card may not make a big difference on your credit score, having a wallet full of them will definitely drag your score down.

Why is this important? After all, if you live a debt-free lifestyle, you shouldn’t be concerned about your credit score, right? Well that makes sense in theory, but not in practice. Most disciplined, debt-free folks still use mortgages to buy their homes, and a poor credit score can limit your access to the best mortgage interest rates, costing you tens of thousands of dollars over the life of your loan. Besides that, lenders aren’t the only people that judge you by your credit score. Insurance companies, potential employers and a host of other organizations have been known to run credit checks on people before doing business with them, which means that carry too many store credit cards can block you from some important life opportunities.

4) Marketing gimmicks and bad habits

Retailers make money on their credit cards in two ways: First, they get to charge you interest the items you buy from them, making your expensive purchases even more costly. Second, credit cards give them a great marketing angle. Because they have your name and personal information, they can track your buying habits and customize marketing campaigns to you, enticing you to come back to their store to buy more things that you don’t need and can’t afford. They often package these enticements in the form of a discount — but again, the discount only applies if you use their credit card. Unless you pay the balance of the card off every month, you’ll end up paying a fortune in interest.

These marketing gimmicks create a dangerous cycle of habit and conditioning. After seeing a number of “great offers” in the mail over a period of time, you’ll likely be conditioned to look at offers from Macy’s, Target, Gap and other retails and associate them with opportunities to save money (when in fact they are opportunities to spend money). Instead of seeing shopping for what it is — a method to wisely get things that you need and have the money to pay for — you begin to see shopping as something to get excited about. Like Pavlov and his dogs, you run to the store whenever you get a marketing offer from the retailer, whether the deal makes sense or not. And if you’re reflexively pulling out your store-branded plastic to make your purchases, you’re compounding one bad habit on top of another, and costing yourself a ton of money in the long run.

Conclusions

When you look at the interest rates, fees and marketing hooks that come with store-brand credit cards, you see past the false allure of the initial discounts that they offer. Sure, if you work the system in a smart and diligent way, you may be able to take advantage of the discounts while avoiding the pitfalls. Only you know whether you really have the discipline to buy only what you can afford and pay the card off on time. But even the most disciplined shopper is vulnerable to credit score damage and psychological marketing cycles that store credit cards can cause.

Our advice: Bypass the initial discount and put your big purchases on a debit card. The savings are attractive, but they’re probably not worth the long-term costs.

——

Photo by Steven Depolo. Used under Creative Commons License.