Walmart’s been expanding its services into the financial industry: its MoneyCenter offers tax help, check cashing and printing, and money transfers. It’s probably best known for its prepaid debit card, the MoneyCard, which can be reloaded in-store.
In addition, the megastore offers two little-known Walmart credit cards: a store card, and aDiscover card. In an effort to target the average Walmart shopper, who probably relies more on cash rather than plastic for day-to-day expenses, Walmart is offering no-fee, no-interest cash advances at the register. This is somewhat like getting cash back from a debit card, but with one important difference: you’re borrowing against money you don’t have.
Most credit cards assess a cash advance fee of up to 5% on whatever you withdraw, and start charging interest immediately. Walmart treats the cash advance as a purchase, so not only can you avoid the cash advance fee, but you have until the billing period ends to pay off the advance before you’re charged interest, if you’re able to pay your bills in full.
Walmart credit cards: use with care
It’s not immediately clear from the website, but while the Walmart Discover can be used anywhere that Discover is accepted, the Walmart Credit Card can only be used in-store. While the two-card system is fairly standard practice for retail credit cards, it’s not always easy to differentiate between the store-only and more versatile cards.
The Walmart credit card allows shoppers access to cash, which they might prefer to plastic, and can allow shoppers to treat the cash register almost like an ATM. Therefore, allowing no-fee cash advances at the register is a way to increase foot traffic to the stores: a customer might well stop by to get cash and end up picking up a few impulse purchases.
However, the practice may encourage unsustainable borrowing habits. Unlike a real ATM, users are able to withdraw well beyond their means, making it easy to start racking up serious interest charges. It’s also risky business – maxing out credit cards, or missing payments because you can’t afford the bills means your credit score will take a hit.
And if you ever move on to another credit card, you won’t be able to get a cash advance without high fees and (usually) a much higher interest rate that’s charged starting on the day that you take out the advance.
The Walmart Discover: 1% rewards, sort of
The Walmart Discover actually has a network, so it’s accepted outside of the fluorescent aisles of the megastore. But the rewards claim – 1% back on all purchases – is somewhat misleading. You do receive 1% cash back, but only after you’ve spent $3,000.
In the meantime, the first $1,500 that you charge to your card only earns 0.25% interesting rewards, or a maximum of $3.75. Then the rewards rate for your next $1,500 doubles to 0.50%, for a grand total of $7.50. Only your spending over $3,000 actually earns the full rewards rate, and before then you’ve only earned $11.25 instead of the $30 you would’ve earned if the card actually paid 1% on all purchase.
Other features to be aware of
There are a few more features we’re not thrilled about. For one, the interest rate is exceptionally high. Like many other retail cards, the Walmart credit card seems to assume from the get-go that you have poor credit and can’t be trusted. The 22.9% standard interest rate puts the no-additional-interest cash advances in a whole new light, since few banks charge more than this rate on advances. And for purchases, you can almost certainly do better with a credit union card, or even with the bad-credit-friendly Orchard Bank MasterCard.
The one huge benefit of the card for those with limited or poor credit is that it has no annual fee. Using it (responsibly, of course) will allow you to build up your credit score without paying the usual $25-$35 in fees that a secured credit card would rack up. As a credit-building card, having no fees works in its favor, but if you intend to carry a balance month-to-month, we’d still recommend finding a card with better terms. The fact is, this interest rate is brushing up against the maximum rates charged by any credit card.
Alternatives for less-than-stellar credit
If you’re looking at one of the Walmart cards to build or rebuild credit, hold out for something better. A number of large banks – Bank of America, Citibank and Wells Fargo, among others – are leery of handing out even no-risk secured credit cards. Some require you to be out of bankruptcy for a year, others have minimum FICO scores.
However, there are some credit unions whose explicit mission is to lend to those who otherwise wouldn’t be able to get credit. The Orchard Bank MasterCard, for one, is an unsecured credit card aimed at people with less-than-stellar credit, so it’s easier than most to qualify for. And while it has a few fees ($68 the first year and $59 thereafter), the APR is much more manageable, and using the card will help you rebuild your credit score.
The secured version of the Orchard card actually has more favorable terms, if you can make the $200 upfront deposit: a $35 annual fee that’s waived the first year, and a low 7.9% APR. Orchard Bank is one of the best banks for people with bad credit, and they tend to be honest and transparent.
If you have no credit history as opposed to a less-than-stellar one, you have more options. Those in high school or college (with a co-signer) can find favorable terms with a student credit card, which can give as much as 5% back in rewards. The Citi Forward for Students gives 5% back on the things that students burn their cash on: music, movies, dining out, and books (including textbooks, which considerably softens the blow of a $300 book).
For those over 21 but getting their first credit card in the US, the Capital One Cash Rewards for Newcomers is aimed at immigrants with a limited credit history. Although the APR is really high, it offers 1% back on all purchases plus 2% back on travel, for those who can pay their bills in full. The card also waives its foreign transaction fee (usually 3%), a perk for those who travel home often.