It’s a financial decision people are often unprepared for. And that can spell trouble.
You’re standing in the checkout line of a department store or other retailer. When you get to the register and the clerk scans your items, you feel as though your work is almost done. But then you get the question:
“Would you like to sign up for our credit card?”
Think carefully before you answer. It could be a costly decision.
What are store-branded credit cards?
Store-branded credit cards, also commonly referred to as retail credit cards, are cards associated with select retail stores. Examples of companies that issue these cards range from Petco to Williams-Sonoma, and from Kohl’s to Victoria’s Secret.
As of 2024, over half of the 100 biggest U.S. retailers offered their own credit cards. Annual purchases with these cards have exceeded $200 billion. Revenues from these cards represent a significant portion of net income to the retailers that issue them, meaning they make a big difference to the profitability of those stores
Credit cards associated with retailers may be co-branded or private label:
- Co-branded means the card carries a retailer’s logo along with the name of a general-use credit card like Visa or Mastercard. These cards can be used at other stores just like a regular, general-purpose credit card.
- Private label means the card can only be used at the retailer. It may be issued by a large bank or other financial institution, but it is not a general-purpose credit card.
According to the Consumer Financial Protection Bureau (CFPB), store-branded credit cards often have easier standards for getting approved. That can be great if you’re having trouble getting credit or establishing a credit history. The downside is there can be heavier costs involved.
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Private-label cards: High APRs and other costs
A downside of store-branded credit cards is that the private-label ones often have higher interest rates than general-purpose cards.
The CFPB found that 90% of private-label credit cards had a maximum APR greater than 30%. In contrast, only 38% of general-purpose cards had maximum APRs above 30%. The average APR for store-branded cards was 27.7% at a time when the average general-purpose APR was 22.7%.
For the largest retailers, rates can be even higher. The CFPB found that as of December 2024, the average APR of private-label cards offered by the top 100 retailers was 32.66%.
A higher APR may be only one of the extra costs charged by private-label credit cards. Others may include:
- Extra fees are required for loyalty programs to earn some of the store discounts advertised for these cards.
- Late fees are especially frequent on store-branded credit cards. Late fees represent 25% of consumer costs for private label cards, compared with just 7% on general-purpose cards.
- Paper statement fees are becoming more common. The CFPB reports that many large issuers of store-branded credit cards recently added fees for sending paper statements.
Many store-branded credit cards don’t reward you for good credit
In particular, if you’ve taken care to earn a good credit score, you may want to steer clear of store-branded cards.
The reason is that many of these cards have level interest rate schedules. That means that people with good credit pay the same rate as people with bad credit. Those rates are generally more typical of rates general-purpose cards charge to customers with low credit scores.
So, with a store-branded card, you may not get any benefit for having good credit. In some ways, these cards are using customers with good credit to subsidize losses from those with bad credit.
Watch out for the hard sell
Another complaint that often comes up regarding store-branded cards is that store personnel use aggressive sales tactics to get people to sign up for them.
Often, people are pushed to sign up for them at the checkout register, when there’s little time to review the credit card agreement carefully. This problem is compounded by the fact that the store’s clerks may have had little training to help them explain credit terms.
Consumers have also complained that the promised rewards and discounts often fail to materialize. Sometimes the clerk will promise that the discount will be taken off the balance once the card is approved – but when the bill arrives, no discount is shown.
There are also problems with redeeming certain promised rewards. In one case, instead of receiving a discount, customers got a gift card with a very short-term expiration date. This means the customer could easily miss the deadline, or is pressured to spend quickly.
An add-on product that stores often try to sell with their credit cards is payment insurance. This doesn’t insure the product you’re buying in any way. Instead, it supposedly protects you in the event you’re unable to pay your bill due to illness, disability or unemployment. However, since this insurance may be charged on each statement as a percentage of your balance, it can become very expensive over time.
Another gimmick is deferred interest. A card may offer a promotion like 0% APR for six months. However, if your balance isn’t paid in full by the end of the promotional period, interest is assessed retroactively back to the date of purchase.
What to do before signing up for a store-branded credit card
In light of the potential drawbacks of store-branded credit cards, here are five things you should do before you sign up for one:
- Step away from the checkout line and read the agreement. Take the agreement home, or at least go sit somewhere and read it. Making financial decisions in a hurry is never a good idea.
- If you’re offered a discount for signing up, be clear on whether it applies at the time of purchase. If the discount doesn’t immediately come off the price when you pay it, you may not want to rely on it.
- Consider how often you’re likely to use this card. It may not be worth the hassle or potential expense of signing up for a new credit card if you can only use it at one store.
- Think about the impact on your credit score. Applying for and opening any new credit account has the potential to ding your credit. Sometimes it’s worth it, but you should choose new applications wisely.
- Figure out how long it will take you to pay off your balance. Remember, store-branded cards often have high interest rates. If it’s going to take a long time to pay off your balance, you might be better off using a general-purpose card with a lower rate.
With financial products, it’s often not possible to state that a certain type of product is good or bad in all cases. It generally comes down to the specific terms that are offered. With store-branded credit cards, there’s reason to be especially careful about reviewing the terms before you commit.
