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By Mitch Lipka

(Reuters) – U.S. retailers dangle enticing bait to sign up for store-branded credit cards but biting could be a costly decision for consumers, particularly for pricey items like engagement rings, computers or dining room sets that may take months, or even years, to pay off.

A recent analysis of 64 cards from 42 retailers by CreditCards.com (http://creditcards.com) found that the average interest rate for a store-branded card is more than 23 percent. Jewelry chain Zales topped the list with a rate of 28.99 percent, followed by office supply store Staples at 27.99 percent. The average credit card has an interest rate of 15 percent.

Reuters asked Matt Schulz, CreditCards.com’s senior industry analyst, about the pitfalls and pluses for store-branded cards.

Q: How do stores like Zales and Staples get takers for their cards? What tactics do they and other retailers use to entice consumers to apply?

A: Most retailers rely primarily on discounts at the checkout counter to entice people to apply for these cards, but it is important that people don’t allow themselves to feel pressured.

If you’re interested in the card, say no, but take a brochure home with you and read up on the details. If the card still sounds good to you after you read up on it, apply the next time you go to that store. Chances are all the same perks that drew you in will still be there, but most important, you’ll be making a much more informed decision.

Q: What is the target audience the stores want to get to apply for the cards?

A: Many of these cards are about bringing customers back and building loyalty. I think that would be especially important for Staples, which thrives on repeat business from (buyers) of all sizes. However, even high-end department stores like Nordstrom (http://shop.nordstrom.com/c/rewards-questions) and Macy’s (http://mcys.co/1GixmCS) have tiered programs that reward frequent customers.

Retail card rates are higher in part because of the risk involved. These cards are offered to a wide range of consumers, so interest rates have to be a bit higher to help deal with that risk.

Q: Is it ever a good deal to go for the store-branded card? If so, when would it make sense?

A: Store-branded cards definitely can work for you, but only if you pay your balance off at the end of each month. If you never carry a balance, those 20 percent discounts that come with the card can lead to real savings. However, if you’re paying 25 percent interest to get that 20 percent discount, the math clearly doesn’t work in your favor.

Q: What should consumers consider as alternatives to finance costly purchases, like that engagement ring, as an alternative to high-interest store-branded cards?

A: A general-purpose credit card can be a good option. More often than not, those cards will have lower APRs and better rewards than their retail counterparts. It’s such a competitive time in the credit card business that if you’ve got good credit, you should be able to find a good credit card deal.

Q: When consumers are given the offers for the cards, what should they be looking for in the fine print?

A: As with any credit card, APRs and fees are the most important things to understand. However, it’s also important to know whether the card can be used anywhere or just with that retailer.

They should also understand the rules surrounding any rewards or discounts that come with the card. For example, are there caps on how much you can earn? Are there minimum spending thresholds that you must reach?

Q: Are there any popular retailers that offer branded cards with a reasonable rate?

A: The best rate we saw was a 9.99 interest rate on the Dillard’s American Express card. That’s the low end of a range of possible APRs that tops out at 24.99 percent.

That range makes it very important that you understand what type of credit you have before you apply. After all, the last thing anyone wants is to think they’re getting a 9.99 percent APR on their credit card and end up with a 24.99 percent APR.

(Editing by Beth Pinsker and Diane Craft)

Photo: A man walks out of a Banana Republic store with his purchase along 5th Avenue in New York City, May 11, 2008. REUTERS/Joshua Lott

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