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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
If you've ever shopped with a popular retailer, you've probably been targeted for offer after offer to sign up for that store's credit cards. You may see signs posted throughout the store, face pop-up offers when browsing online, or be asked outright to sign up for the store's credit card at checkout.
Retailers usually hook customers with a promotional discount: "Apply now for 30% off your purchase." These offers can be tempting, especially if your shopping cart is full with hundreds of dollars' worth of merchandise. However, no discount is worth falling into credit card debt with exorbitant fees.
Before you agree to open a credit card with the store of your choice, you should be aware of several considerations we'll discuss in this guide.
Benefits of store credit cards
Most store credit cards aren't worth the sign-up offer because of high interest rates, limited rewards, and sparse benefits. And the rewards you can earn from store-branded credit cards typically aren't as valuable as the points, miles, or cash back you can earn from the best credit cards.
However, a store credit card occasionally makes sense for several reasons. Amazon, Lowe's, Home Depot, and Target all offer store cards that offer one or more of the benefits below.
Build credit
The right store credit card can help you build credit if you use it responsibly, especially if you don't qualify for a traditional first credit card. Retail store credit cards usually offer low credit limits, so it isn't hard to qualify for one. Once you've built up a history of timely payments, you may be able to apply for a secured credit card or graduate directly to an unsecured card.
Reward points and cash back
The best store credit cards reward loyal shoppers with generous returns and unique perks, such as 5% cash back on all purchases from that company. However, a non-branded credit card may be more effective for maximizing your rewards from each dollar you spend.
In some situations, however, a store credit card can make more sense than a generalized one, especially for frequent shoppers at that store.
Exclusive discounts and offers
If you're loyal to a specific brand that offers particularly strong discounts and benefits, it may make sense to get a store-branded credit card. Some retailers offer free shipping on purchases above a certain dollar amount, or early and better access to seasonal discounts.
Special financing options
Some retailers offer a period of 0% intro APR financing on larger transactions, which can be extremely helpful for big purchases. However, you may be able to take advantage of similar deals on generalized credit cards which offer 0% introductory financing. The best zero-interest credit cards often offer significantly longer financing periods, and cover a wider range of transactions beyond what you buy from a single store brand.
Drawbacks of Store Credit Cards
Many store credit cards offer discounts on your first purchase, and some might even come with an ongoing rewards scheme. But a store credit card rarely competes well against the value you'd get by putting that spend on a strong travel rewards credit card or cash-back credit card.
Limited use beyond the store
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. And in some cases, store credit cards can only be used for purchases with that particular retailer's family of brands.
What's more, store credit cards are rarely as stacked with wide-reaching benefits as regular credit cards, which can offer everything from travel insurance and cellphone insurance to annual credits to VIP perks such as airport lounge access.
If you do decide to apply for a store credit card, make sure it's accepted more widely than a single retailer. One easy way to tell if your card has a wider usage reach is to look for the logo of a major payment network such as Visa, Mastercard, or American Express. If your card has one of these logos, you likely can use it anywhere credit cards are accepted.
High interest rates
The average credit card interest rate exceeded 20% in 2023, which is already quite high. Store credit cards often come with significantly higher interest rate, nearly topping 40% in some extreme cases.
Your card's interest rate won't matter if you always pay off your balance in full each month before your payment due date. But if you make a habit of carrying a balance, these interest fees add up quickly.
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 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
Many 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 be dangerous.
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 when that zero-interest period ends, you'll be charged for all the interest on the original purchase amount rather than that remaining balance.
Conclusion
At the end of the day, store credit cards aren't universally bad — or good. Before you impulsively sign up in the store at the register, refer to the information shared in this guide to make an informed decision on store credit cards.
Many of the same best practices for holding a generalized credit card apply to managing a store credit card responsibly as well: Pay off your balance in full to avoid paying high interest when possible, and avoid overspending by setting limits for yourself. If you struggle with responsible credit card usage, a store credit card offering constant discounts and promotions from your favorite retailer can prove irresistible for healthy financial management.
Store credit card frequently asked questions
Attractive features include initial sign-up discounts, loyalty rewards, exclusive offers, and sometimes no annual fees.
They often carry higher APRs compared to general-use credit cards, increasing the cost of carrying a balance.
Responsible use, such as timely payments and low credit utilization, can help improve your credit score, but initial applications may temporarily lower it.
While tempting, it's important to consider the card's terms, your shopping habits, and financial situation before applying.
Store cards may offer more brand-specific benefits but are typically more limited in use and have higher interest rates than traditional credit cards.
