Can you remember the last time you checked out of a department store where that nice cashier didn’t deliver a sales pitch to apply for the store’s credit card? This is now so common these pitches have almost become white noise. You hear that nice person began his or her pitch and in most cases you just totally tune out at that point. You might have even noticed during the past holiday shopping season that some of those sales associates were even pushier than normal.
According to an article published on Yahoo Finance, one sales clerk admitted that they are asked every day how many credit card applications they were able to open. One Macy’s worker who asked not to be identified as she is not permitted to speak about the store’s policy said that pushing credit cards often feels like it’s Macy’s number one priority.
What’s hidden behind the curtain
If your sales clerk seems extremely motivated to get you to apply for the store’s card, there’s a reason. In most department stores their sales associates earn something extra every time they process an application. In the case of Macy’s each time an employee submits a new credit card application he or she earns a coupon for two dollars to five dollars worth of what’s called “Macy’s Money,” which is a sort of gift certificate that the sales associate or cashier can put towards future purchases at the store.
If the application is approved
If the customer’s application is approved she or he will likely get a 10% or 15% discount on the purchase. However, the customer will end up with one of the highest interest credit cards on the market. As an example of this, Macy’s charges a flat APR of 24.5%. In the event the application is declined, the customer walks away with a hard inquiry on their credit report, which can damage their credit score, and with nothing to show for it. On the other hand, the sales clerk gets credit whether or not the customer’s application is approved.
“I know that if they apply it can hurt their credit but (managers) make you push it and push it,” the Macy’s worker said. “I try to be honest with people. I tell them to make a payment as soon as they make the purchase.” Another Macy’s sales associate, this one in North Carolina, described the identical incentive system.
Macy’s is not alone
Macy’s is certainly not the only store that does this. At Kohl’s, employees get $1 to $2 per credit card application. In this case, they don’t get a coupon. They get cash added to their paychecks. This is according to a former HR manager who worked at Kohl’s for nine years. While each of the company’s stores has a different daily credit card application goal it’s usually to get 30 applications a day. Until a few years ago some Kohls managers would congratulate the sales associate when he or she processed a new credit application on the store’s speaker system. However, this practice was stopped after some of its customers and workers complained.
It effects their annual performance reviews
Macy’s workers say that a part of their annual performance review is based on how many credit card applications they had pushed throughout the year. However, they did not know exactly how much this impacted their reviews. But a Kohl’s manager reported that credit card solicitations accounted for up to 20% of its employee reviews.
It’s tough to condemn them
The average retail worker makes a little over $12 an hour. This makes it difficult to blame them for trying to earn an extra buck even if this means promoting a pretty awful credit card. Retailers are high on store-branded credit cards, especially department stores like Kohls and Macy’s, because they help make up for the lackluster sales they have seen this past year. When retailers are able to get more store-branded cards in the hands of their customers this creates more revenue. In fact, Macy’s will earn this year more than $1 billion in fees from its credit card program, which is double that of 2010. Another reason why stores love their branded credit cards is because it ensures the store will make a profit from each sale since they don’t have to pay a percentage of each of sale to another credit card issuer.
The biggest reason why you shouldn’t love store-branded credit cards is because of their outrageous interest rates. As noted above, Macy’s charges a flat APR of 24.5% if you were to use this card to buy $1000 worth of merchandise and continually made just the minimum required payment it would take you more than 100 months to clear the debt and would cost you $1332.18 in interest – or $332 more than your initial balance.
Second, most store credit cards have very low limits so it’s relatively easy to use up their full amounts. This will damage your credit score because of the effect it will have on your credit utilization ratio. This ratio is calculated by dividing the total amount of credit you have available into the amount you’ve used. As an example of this if you have $10,000 in total credit available and have charged up $3000 your credit utilization ratio would be 30%, which is considered to be good. If you were to get a store card with a $500 limit and use it all up your credit utilization would go to 33% and this could have a negative effect on your credit score.
The store credit cards can quickly lead you into debt. You might find it hard to pay them all off. Of course, you have the option to use credit card consolidation but the effect on your credit score might already have done enough damage.
Not so much
That great-looking discount you would earn from opening the store-branded credit card might not save you much more money than would the sales alerts and coupons you probably get on an everyday basis. We see newspaper ads with coupons for discounts on purchases at Macy’s to the point where we’ve often wondered what its “normal” prices are. We took a gift card to our local Macy’s last week to buy a sweater. Our sales associate proceeded to pull out some kind of supplement from under the counter with coupons that saved us money we hadn’t even counted on. And that was without any sort of sales pitch. So we felt doubly good about her.