Theories and strategies for the complicated world of in-store plastic
There are reasons why almost every retailer on the planet offers a credit card. And they’re good ones. First, they know a good percentage of their cardholders will carry a balance. And when someone carries a balance on a credit card (meaning, they don’t pay it off in full each month) the retailer and credit card company get to ding that customer for service charges and interest fees. Not just once, but each and every month until the balance is paid in full. A pair of $32.00 jeans paid with their in-store credit card could end up making the retailer $42.00 if the customer carries a balance for long enough. Not a bad windfall if you’re the one selling the clothes.
The other incredibly valuable reason is data mining. It’s no different than having a super-saver club card for your local grocery store. When you buy something with a card the store has provided you, you’re no longer anonymous. They can track your spending habits, and thus tailor promotions, catalogs, emails, and coupons specifically for you. Here’s an example from the grocery store model: I picked up a few items at my local supermarket the other day and along with my receipt I got a couple of coupons. One was for a package of ice-cream sandwiches which I love. (Skinny Cow, Chocolate Peanut Butter). I hadn’t bought those ice cream sandwiches in awhile, but the deal on the coupon was good enough that I actually turned around, went to the freezer aisle, and picked up a pack.
You think that coupon just showed up there on accident? Hell no. The computers knew I hadn’t bought those in awhile, and since a sale was going on, they dropped their lure in my water. And I bit.
Think of the power this gives the retailer. Take all of those card-members, put them in a data pool, and start running some scenarios. When do the majority of those core customers do Christmas shopping? At what sale price does a pair of regularly $120 shoes become irresistible? How early can they debut fall lines? The store no longer has to make educated guesses as to when they need to launch sales and go after certain customer demos. They’ve got the data, and now they can stop guessing and make an educated plan of attack.
Frightening isn’t it.
You can take advantage of this maddening game. You just have to have some discipline. Card-holders for most retailers get “special” offers in the mail. 25% off coupons, $15 off when you spend $40 or more, etc… The stores play this off as a VIP service, or as “gifts” for their card-holders. Don’t be fooled. Those special offers are nothing more than bait to get cardholders in the store, some of which are still carrying a balance. If a retailer can keep a certain percentage of their cardholders to perpetually carry a balance by luring them in with substantial offers, those service charges and interest rates will eventually help pay for the extra savings coupons they’re shelling out. It’s a numbers game, and it’s an incredibly smart one at that.
The poor financial decisions of others can work out greatly in your favor, as long as you pay off that bill every month. You’ll still get all the coupons and special deals that comes with having an in-store credit card, but make sure not to get nipped at the end of the month because you forgot you bought that sweet trench coat. The APRs on in-store plastic are outrageous, and you can go from treading water to drowning in a few months. You’ve got to use the in-store credit card like it’s your debit card. Post purchase, come right home and deduct the cost out of your checkbook. Don’t have a checkbook? Schedule an online bill pay for the cost of the item through your bank. Most online banking will show you your available balance with the scheduled bills deducted for you. You MUST keep the balance at zero. No exceptions.
Versatility and rewards. Those are the two factors you need to take into consideration when committing to signing up for an in-store credit card. You’ll murder your credit score if you start signing up for every two-bit piece of plastic available. Choose wisely, shop smart, and consider one of these two if you’ve got decent credit:
The Macy’s Star Rewards Card – What can’t you get from Macy’s? With the card you’ll earn $10 – $25 rewards gift certificates, get special notifications on sales, and they send you boatloads of coupons in the mail. And those coupons? You can even use them on sale and clearance items. Looking for a suit? Hit a one-day-sale with a 20% off coupon in your pocket and you could snag an Alfani Red for as little as $170. Not bad.
The Banana Republic Card – You’ll always need basics. And this card works at not just Banana Republic, but Old Navy and The Gap too. The rewards are substantial too. For every 1000 points you accumulate ($1 purchase at B.R. family stores = 5 points) you’ll receive a $10 gift card. You can often get free online shipping on orders over $100, and they’re always coming up with decent deals for card members that can often get to 40% off.
The credit card game is a lot like gambling. The rules are set up so the house almost always wins. But if you stay disciplined and use your plastic like it’s coming straight out of your checkbook… then you can sometimes walk away knowing you beat the system. But if you have any doubts that you can play this game by the rules set out above? Then don’t.
What Retail Credit Cards do you have? Are there some that have better rewards than others? Do you always pay with cash regardless? Leave any and all feedback, tips, and lessons learned in the comments section below.
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