We’ve all experienced the pitch at the checkout counter: “If you sign up for our credit card, you can get a discount on today’s purchase,” the cashier says.
Store credit cards can be very enticing because they offer immediate value, typically in the form of a discount or bonus cashback. And if you shop at a particular retail store often, you could benefit from other ongoing features its branded credit card provides.
But in many cases, a store credit card could do more harm than good to their holders. If you’re thinking about applying for one, here are some things to keep in mind:
- They don't help build credit
- They're more expensive
- They offer low credit limits
- They could lead to overspending
1. They don't help build credit
One of the reasons store credit cards are appealing is because they’re easy to get. While requirements can vary, many retail cards are available to people across the credit spectrum.
If you’re just starting to build your credit history or you’ve made some credit missteps in the past, a store card could help you establish positive credit habits. They also don’t require upfront deposits, which is common with secured credit cards.
Secured credit cards can still be a good option if you're looking to boost your credit score and history. Here are Credible's secured credit card suggestions that offer a "worry-free way to build your credit."
Just keep in mind that not all store cards report your activity to all three credit bureaus, which is essential to building a credit history. Also, while store credit cards may be easier to get, they’re not necessarily easier to use. Many retail cards are closed loop, which means you can only use them at the co-branded retailer’s stores.
2. They're more expensive
Credit cards are one of the more expensive types of consumer credit available, but while the Federal Reserve pegs the average credit card interest rate at 14.58%, store credit cards often charge rates in the mid- to upper-20s. As a result, if you carry a balance from month to month, it’ll typically cost you more on a retail card than most traditional credit cards.
Also, many store cards offer deferred-interest promotions to encourage you to shop at the retailer. These deals allow you to pay off a purchase—usually a large one—over time with no interest charges, similar to a traditional 0% intro APR promotion.
The difference is that if you don’t pay off the full balance by the time a store card’s deferred-interest promotion ends, you’ll be charged interest on the original charge retroactively.
In contrast, 0% APR credit cards will only charge you the card’s purchase APR on the remaining balance. If you’re looking for a 0% APR card, use an online marketplace like Credible to search and compare your options.
The good news is that retail cards typically don’t charge annual fees, which is common with credit cards for bad credit and some rewards credit cards.
3. They offer low credit limits
Most store cards offer low credit limits, which can make them more difficult to use and cause problems with your credit history.
Your credit utilization rate—the percentage of your available credit that you’re using at a given time—is an important factor in your credit score. If you have a $200 balance on a card with a $300 credit limit, your utilization rate will be 67%, which is high and could cause your credit score to drop.
In contrast, if you get a traditional credit card with a $1,000 credit limit, your $200 balance would only result in a 20% utilization rate, which likely won’t have a negative impact on your credit report—in general, the lower your rate, the better.
4. They could lead to overspending
Many store credit cards offer rewards and other features, such as discounts, exclusive access to sales and more, to convince you to use them more often. The combination of these features could ultimately cause you to spend money you wouldn’t have spent otherwise.
Of course, traditional rewards credit cards may do the same thing, but they typically don’t offer extra discounts and access to sales on top of their cashback, points, or miles.
Credible can help you compare different types of reward cards, including various rates and fees that come with them. Use these free tools to find the recommended card for your needs.
Is it a good idea to open a store credit card?
Getting a store credit card could be a good idea if you’re having a hard time getting another credit card because of your credit history or if you regularly shop at a specific retailer and can’t get as much value from another card.
That said, it’s crucial that you consider all the benefits and drawbacks of retail cards before you decide to apply. Also, if you end up racking up a balance on your store credit card — or any other card for that matter — take some time to consider ways to pay off your bill more effectively. Balance transfer credit cards allow you to move your balance from one card to another, typically with low APRs upfront.
Again, you can use Credible to compare and contrast balance transfer cards and offerings.
Also, personal loans can be used to consolidate credit card debt, giving you more structure than a credit card. Head to Credible to compare debt consolidation loans today.