Should I Have a Store Credit Card?
Are store credit cards worth applying for? How do store credit cards work? Find out everything you need to know about store credit cards here.
October 20, 2021
It’s a familiar experience for shoppers these days: You get to the checkout counter, and you’re immediately offered an application for the store’s credit card — usually with a discount or complimentary gift thrown in if you apply today.
These deals can be tempting, but are store credit cards worth it?
What are store credit cards?
Let’s start with the basics: What is a store credit card, and are they different from standard credit cards?
A store credit card is a financial product offered by a specific retailer. They are common at department stores like Macy’s, chain stores like Target and online retailers like Amazon.
A store credit card allows you to make purchases at the retailer and then pay them off over time. You’ll pay interest on purchases if you don’t pay them off immediately. But if you pay off your card in full each month, you won’t pay any interest.
Store credit cards are offered by the retailer but are usually managed by a third-party bank. The cards typically offer discounts on purchases made at the issuing retailer. For example, the Target RedCard offers 5% back on purchases at Target.
These cards also generally come with an initial discount, which retailers use to attract people to apply for the card. You may be offered 10%, 20% or even 40% off your purchase at a department store if you apply for the card during the same transaction. This promotion is a one-time discount.
How do store credit cards work?
For the most part, store credit cards work in the same way that normal credit cards do. You can use them to make purchases and either pay off the card when the payment is due — about a month later — or carry the balance and pay it off over time with interest.
The main difference with store credit cards vs. bank credit cards is that some store credit cards can only be used at the specific retailer that issues the card. If you’re wondering how to use a credit card at a store, the answer depends on whether it’s a co-branded or store card.
There’s some understandable confusion regarding “store cards,” as many retailers offer several different options.
How do store credit cards work? Here’s a breakdown:
Membership rewards cards
Rewards cards are not usually credit cards. They are simply a complimentary membership card you can get that earns you rewards when you make purchases at the relevant retailer. You may also use these cards for digital coupons and other discounts. Rewards cards don’t affect your credit or cost anything in interest.
Store credit cards
Store credit cards are credit products that allow you to pay for charges over time. They do affect your credit and will accrue interest if you carry a balance. Store credit cards only work at the specific retailer that issues them. For instance, the Target RedCard can only be used at Target.
Store co-branded credit cards
Many retailers also offer co-branded credit cards issued by banks and carry the logo of either Visa, MasterCard, Discover or American Express. These cards are similar to store credit cards, but they can be used anywhere credit cards are accepted.
Some retailers offer both standard store credit cards and co-branded cards — and sometimes, there’s only one application for both cards. When you apply, the issuing bank will typically decide which version you qualify for; store cards are easier to get approved for than co-branded cards.
Pros and cons of store credit cards
Are store credit cards bad, or are they worth applying for? The answer depends on several factors. Here are some of the advantages of store cards as well as some drawbacks.
Often easy to get approved for, even with moderate or poor credit
Typically come with a substantial discount on your first purchase
May offer ongoing discounts on future purchases
May come with other retailer-specific perks, like extended warranties or return windows
Store credit card interest rates are typically higher than standard credit card APRs
Some cards can only be used at the specific retailer that issues the card
Discounts and perks may make it easier to overspend and go over your budget
Standard cash-back credit cards from banks may offer more lucrative rewards in the long run
Should I get a store credit card?
Generally speaking, store credit cards are not the best option due to their high interest rates and limited uses.
On the other hand, there are some cases where a store card may make sense. They’re easier to get approved for than standard credit cards so they may be useful for building credit. And if you do most of your shopping at the specific store, the ongoing discounts can add up.
Before applying for a store card, here are some useful questions to ask yourself:
How often do I shop at this store?
How much is the discount actually going to save me?
Does the card have an annual fee?
What is the APR of the credit card? Is it higher than average?
Do I have good credit? Would I be better served by a standard bank rewards credit card?
Store credit cards can be a slippery slope that could make it easier to get into debt. If you have a history of overusing credit cards, it’s best to avoid store cards altogether. And if you’re in credit card debt right now, take a look at Tally†, a financial app that helps Americans get out of credit card debt faster.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.