Store credit cards offer enticing discounts up front, but you should ask yourself 4 questions to decide if it's worth it

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  • Nearly half of consumers are considering applying for a store credit card during the upcoming holiday shopping season.
  • Store credit cards have very high interest rates — upwards of 24%, on average — but they can make sense for certain shoppers.
  • If you wind up applying for a new store credit card, read the fine print, and make sure that you make the most of your reward opportunities quickly.
  • See Business Insider's list of the best rewards credit cards »

As Americans gear up for a different kind of holiday shopping due to the pandemic, quite a few of them aren't just planning to ask Santa to go to the store for them. They're thinking about asking the store if they can add a new piece of plastic to their wallets.

A new study from CompareCards by Lending Tree shows that 44% of shoppers are at least somewhat likely to apply for a store credit card during the holiday season. Two years ago, that number was only 24%.

With high APRs, store credit cards aren't always as good as finding that perfect present on the clearance rack. Here's a look at four key questions to help you figure out if applying for one makes sense.

How loyal have you been to the store in the past?

Before you decide to apply for a store credit card, take a look at your past spending. Are you a regular customer throughout the year — not just during the holidays? If so, it might be worth it.

Ted Rossman, industry analyst at CreditCards.com and Bankrate, says the most compelling offer he sees for store credit cards is 5% cash back. Target's RedCard, Lowe's Advantage Card, and Macy's Credit Card are a few of the retail credit cards that will give you 5% percent back when you shop there.

"If you're loyal to that store, that's actually a good deal," Rossman says. "As long as you're not overspending and going outside your budget, it can pay off."

In some cases, Rossman highlights that the more you spend, the more rewards you can earn, too. For example, both Macy's and Nordstrom have a tiered reward structure with their credit cards.

Are you trying to build your credit?

If you have a limited credit history, a store credit card can be a decent fit to help build your financial profile. "It's often easier to be approved for a store credit card," Rossman says. "That's part of why banks and retail partners charge higher interest rates."

Those easy approvals come with some potential drawbacks, though. "These often have very low credit limits," Rossman says. "It's easy to max out a store credit card, which can be very harmful to your credit score."

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"Go in with a plan," he says. "Many stores might try to incentivize you with 10% off your purchase. If you're buying an appliance or a big piece of furniture, that might make sense. But don't waste the application if it's a store you might never visit again."

Could deferred interest come back to haunt you?

While that 10% day-of discount can sound tempting, Rossman also warns against a trap that can be buried in the fine print: deferred interest. If you don't follow Rossman's No.1 rule of paying off your balance in full, the card agreement might mean that you can be retroactively charged interest from the day you opened your account.

For example, consider the language that accompanies Home Depot's offer for "no interest if paid in full within six months." The asterisk includes a warning that "interest will be charged to your account from the purchase date if the purchase balance is not paid in full."

Let's say you make a $1,500 purchase in November, and you still have $50 left to pay off at the end of May. You would owe interest on the entire $1,500 — not just that remaining 50 bucks.

Beware of bankruptcy getting in the way of your rewards

If you do wind up opening a store credit card this holiday season, don't let your rewards gather dust. The recent wave of retail bankruptcies — J. Crew, Neiman Marcus, and Century 21, to name a few — should serve as a reminder to put those statement credits and cash back opportunities to use sooner than later.

"If you're sitting on a stockpile of reward points," Rossman says, "there are risks that they may be worthless if the store is not around anymore."

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