Skip to Content
Tally logo

Buyer beware: The pitfalls of a store credit card

The features of store credit cards often aren’t as great as traditional cards.

Sarah Li Cain

Contributing Writer at Tally

May 7, 2019

“Sign up for our store credit card and score a sweet deal!”

As if waiting in long lines isn't enough, many retailers delay the checkout process by enticing you with this too-good-to-pass-up discount on your purchases.

Sure, the application process takes a few minutes (and 20% off does sound amazing), but store credit cards are often not worth it. They’re not all bad, but store card features aren’t as great as traditional credit cards.

So before you agree to that promotional deal, think about a few of the pitfalls of store credit cards.

High interest rates

Store credit cards are known to have high interest rates. We’re talking about a minimum of 20% annual percentage rate (APR).

If you’re disciplined and pay off your balance every month, it’s not an issue. However, if you intend on carrying a balance or can’t pay it all of at the end of the month, you’ll end up paying a ton of interest.

That initial discount you got on your purchase doesn’t look very good now, does it?

Low spending limits

Once you get a store credit card, you may find the spending limit is low — like less than $500. If you don’t intend on using it all that much, it’s fine. But your card is pretty much rendered useless if you want to incorporate into your daily spending.

Worse yet, even seemingly small purchases can negatively impact your credit score.

Your credit utilization rate — the ratio of the credit card limit to your balance — can easily go up. More than 30% and you’re looking at a lower credit score. Think about it: That’s a $150 balance on a $500 credit limit.

This can lead to a lower credit score because it leads lenders to believe there's an increased chance you borrowed too much. That puts you at risk of not being able to pay your balance. And if you make late payments, your score goes even lower, as it’s viewed as you not being a creditworthy borrower.

Some cards also have limited acceptance. As in, you can only use the card with a specific retailer or a group of retailers. Store cards that are co-branded, such as with Mastercard and Visa, will be accepted more widely.

More spending encouraged

As soon as you get that card, you’ll be offered even more incentives to spend: exclusive discounts, pre-sales for cardholders, frequent emails and rewards based on how much you spend. Some cards even raise your credit limit to encourage you to spend more.

Discounts and rewards are great, but not when it comes at the cost of your budget.

These temptations can help you easily fall into debt. Coupled with high rates, you could be paying interest on that outfit for a long time.

Vague terms and conditions

If you're applying for a store credit card during checkout, you don't exactly have time for a full rundown of the terms and conditions. The cashier has other customers to help, so they want you to move through the line.

You’ll be given a pamphlet of the written terms but, odds are, you won't review and compare them to other cards. Is this really sufficient time to make sure the store credit card is suited for your needs?

Retailers also like to advertise promotional rates, like 0% APR for the first year. You may think you don’t have to pay interest on your purchase until you get slapped with a bill 12 months later.

Here’s how it works: Let’s say you have a credit card that says, “No interest if paid in full within 18 months.” This means it’s an interest-deferred offer, not an interest-free offer.

If you don’t pay off your entire balance within those 18 months, you’ll be slapped with interest charges after the introductory period is over. That means you’ll need to pay interest from the date you made the original purchase, plus your remaining balance.

So if you don’t pay off that $500 purchase within 18 months, you could see a $100 charge added to your statement.

Limited rewards

Store credit cards encourage you to keep spending at their store — and rewards programs are one of many ways to do just that.

It’s great to earn points toward purchases, but you often have to spend hundreds — even thousands! — of dollars to qualify for a small discount or free merchandise.

Credit cards that aren’t associated with a specific retailer often have flexible redemption choices. For example, the points you earn can be redeemed for travel, gift cards or cash-back incentives. So, if you’re into saving money on all types of purchases, cash-back incentives may be your best bet.

Similarly, cards geared toward airline miles may be best for frequent travelers. You have a lot more flexibility in terms of optimizing your spending, so take that into consideration.

Before you sign the dotted line ...

Store credit cards aren’t always bad. If you pay off the balance each month and are careful in your spending, the discounts you receive could be worth it. But if you're looking for a card with a high credit limit or flexible rewards options, you may want to look elsewhere.

Whatever you do, don’t let anyone pressure into signing up for something you’re not ready for.

There are other ways to get discounts from your favorite retailer. If that’s the only reason you’re signing up for a store credit card, then it’s worth considering if that’s the right one.

Looking for help with an existing store credit card? Check out the store credit cards supported by Tally.