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Are Store Credit Cards Good? A Comprehensive Evaluation

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  • Store credit cards can be tempting, but they're not without their dangers.

  • These cards come with high interest rates and low credit limits, which can land you in debt.
  • You also have to watch out for deferred interest promotions, which can be costly.

Introduction to Store Credit Cards

It's a universal experience to face offer after offer for store credit cards when out shopping.

Usually, they'll hook you in with a promotional discount — apply now, and you'll get 30% of your purchase. This can be tempting, especially if your cart is packed full. However, no discount is worth falling into credit card debt and racking up fees.

Before you agree to open a credit card with the store of your choice, there are some things you should watch out for.

Overview of Store Credit Cards

Store credit cards are almost unavoidable during the checkout process.

They often offer a one-time discount just opening a card, but most store credit cards aren't worth it. This is due to high interest rates, limited rewards, and sparse benefits.

Generally speaking, the rewards you can earn from these cards aren't as valuable as the points, miles, or cash back you can earn from the best credit cards. But a store credit card could might be a good idea when it comes to building your credit, or if you're a brand loyalist.

Things to Keep in Mind

Reward Points and Cash Back

While many store credit cards offer a discount on your first purchase, and some might even come with an ongoing rewards scheme, very rarely can a store credit card compete with the rewards you'd earn from a good travel or cash-back card in terms of value. Not only do store credit cards typically have lower rewards rates, but you'll often earn bonus rewards on a much narrower range of purchases — sometimes only on purchases made at that store.

Take for example Target's popular store credit card, the RedCard, which offers 5% off all of your Target purchases. This is the main perk of the card, although it does offer 5% off at in-store Starbucks locations and an exclusive Hotels.com discount as well. While this might be a good deal for avid Target shoppers, most people will get a lot more value out of a more general cash-back credit card. For example, the Citi® Double Cash Card  gets you an unlimited 2% back on all of your purchases: 1% back when you make a purchase, and another 1% back when you pay your bill.

What's more, store credit cards are rarely as stacked with wide-reaching benefits as regular credit cards. Again, they might have some perks that apply to your shopping experience at that store, but that's it. Regular credit cards offer everything from travel insurance and cell phone insurance to annual credits to VIP perks like airport lounge access.

Drawbacks of Store Credit Cards

High Interest Rates

The average credit card interest rate is 14.52%, which is already quite high. Store credit cards come with even higher interest rate, often reaching 25% or more.

If you make sure to always pay off your balance in full before the monthly due date, this won't matter. However, if you make a habit of carrying a balance, these interest fees add up quickly.

Let's say you charge just $500 to a store credit card with a 25% interest rate. If you pay it off by making the minimum payment each month, it will take you four years and 10 months to pay off the entire balance, and you'll end up paying about $360 in interest fees.

Limited Use Beyond the Store

Typically, store credit cards can only be used to make purchases with the store or company the card is affiliated with. This means you can't use it anywhere else. There are also co-branded credit cards that are offered by a major credit card issuer but co-branded with a retailer, and these can be used everywhere. Some stores offer both.

For example, if you open the TJX Rewards Credit Card, you can only use it at T.J. Maxx and affiliated stores like Home Goods and Marshalls. However, if you open the TJX Rewards Platinum Mastercard, you can use it anywhere that Mastercard is accepted.

The best way to figure out where a store credit card is accepted is to look for a logo of one of the major payment networks, such as Visa, Mastercard, or American Express. If your card has one of these logos, you can use it just about anywhere credit cards are accepted.

Potential Impact on Credit Scores

Something to watch out for is new inquiries on your credit history. When you apply for credit, it results in a hard pull on your credit report, which can ding your score a few points. This is only temporary, so one or two credit applications shouldn't make a big difference. However, if you apply for a handful of store credit cards in a short period of time to take advantage of a discount offer, you'll likely see a more dramatic impact on your credit.

In the end, the value of a store credit card depends on how you use it. Used responsibly, store credit cards can be a worthwhile way for loyal shoppers to score discounts and possibly even build credit. Just make sure you're aware of the pitfalls before you sign the dotted line.

Any credit card has the power to help or hurt your credit. However, store credit cards have some particular features that make them unique in this regard due to their typically low credit limits.

It's not uncommon for a store credit card to come with a credit limit of $500 or $1,000, even for creditworthy applicants. One of the most important factors in calculating your credit score is your debt-to-credit ratio, or your credit card balances divided by your overall available credit, and you want to keep this below 30%. If you have a $500 credit limit, and you regularly put $300, $400, or more on that credit card, it could easily ding your score — even if you pay off your balance.

Surprise Charges

Lots of credit cards offer 0% intro APR promotions that let you use the card interest-free for an introductory period — usually anywhere from 3 to 21 months. Interest is waived this whole time, and after the introductory period ends, the card starts charging the regular APR on any remaining balance.

Some store credit cards offer a different kind of no-interest promotion in which interest is deferred rather than waived, and these can land you in dangerous territory.

With a deferred interest promotion, you can use the card interest-free for the entire promotional period. Unlike waived interest promotions, though, cards with deferred interest begin accumulating interest as soon as you make a purchase. If you have any remaining balance at all when that period ends, you'll be charged for all the interest on the original purchase amount rather than that remaining balance.

Imagine making a purchase for $2,000 on store credit card that offers no interest for 12 months, and you pay off the entire balance except for $100 within those 12 months. Unfortunately, when your 12 months are up, you receive a bill with interest charges assessed on that original $2,000 purchase, not on your $100 remaining balance. This often leads to expensive surprises for consumers who take advantage of store credit cards with deferred interest. 

FAQs

What makes store credit cards attractive to consumers? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.

Attractive features include initial sign-up discounts, loyalty rewards, exclusive offers, and sometimes no annual fees.

Why are store credit cards criticized for high interest rates? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.

They often carry higher APRs compared to general-use credit cards, increasing the cost of carrying a balance.

Can using a store credit card improve my credit score? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.

Responsible use, such as timely payments and low credit utilization, can help improve your credit score, but initial applications may temporarily lower it.

Is it a good idea to accept a store credit card offer at checkout? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.

While tempting, it's important to consider the card's terms, your shopping habits, and financial situation before applying.

How do store credit cards compare to traditional credit cards? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.

Store cards may offer more brand-specific benefits but are typically more limited in use and have higher interest rates than traditional credit cards.

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