Are retail credit cards worth it?

Benjamin Pape
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Benjamin Pape
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Many retail stores want to offer you a line of credit, but before you sign up to get 10% off your purchase and a free umbrella, you need to understand the effect that such cards can have on your overall credit, both good and bad. First off…

What is a store credit card?

Almost every time you approach a cash register, it seems like you are propositioned with an offer to apply for a new store credit card. Not Visas or MasterCards, but cards issued with a retail store’s name on them for exclusive use at that store. J.C. Penney was one of the first retail stores to issue credit cards back in 1958. Since then, retail companies have recognized the profit to be made by operating their own credit card operations. 

So what’s the hook? Usually it’s discounts for the store’s merchandise along with other perks. “Sign up today and save 25%…” You’ve heard the spiel from the Gap, Kohl’s, Dillard’s, Target, and the list goes on and on. Retail credit cards usually offer buyers a discount when signing up, which draws a lot of people in, and then discounts or rewards on purchases moving forward. When used carefully, store credit cards can be beneficial if you shop at that store regularly, but as with most things there are pros and cons for shoppers to consider.

Pros of retail credit cards

If you were planning to pay with cash anyway, or if you’re thinking about building a credit history, retail credit cards offer some powerful benefits:

  • Store-only cards offer easy ways to establish credit. Many Americans’ first credit card often comes from a retailer like Gap or Target. The requirements for retail cards are often less stringent than for major credit cards. A selective consumer can establish a positive credit history with retail store credit cards, which usually have lower credit limits and are therefore easier to obtain.
  • Special financing offers. Applying for a retail card sometimes helps you score same-as-cash deals for larger purchases such as computers, appliances or furniture, allowing you to pay smaller monthly installments with no interest for a period usually six or 12 months. Just be sure to pay off the full amount before the finance charge-free period comes to an end. If your payment is not made in full by the same-as-cash period end, finance charges will retroactively apply from the date of purchase.
  • Special savings events. Beyond introductory discounts, special savings events and sales just for the store credit card holders, there are often rewards programs where you can earn points for every dollar you spend on the store credit card, then cash the points in for future store purchases.

Cons of retail credit cards

If you have ever wondered why the cashier doesn’t sound so enthusiastic about their company’s credit card, it could be because of these downsides:

  • High-flying APRs. The interest rates for department store credit cards are typically higher than major credit cards. The perks don’t always outweigh the charges, therefore, if you can’t pay off your balance every month, retail store credit cards are likely not a good fit.
  • Open lines of credit can affect your credit history. The store clerk tells you that if you open up a line of credit today, you can get one year free financing on that sofa you just purchased. If you’re not careful though, you could end up with several lines of open credit, and then only end up using those cards once or twice a year, forgetting that you even had the cards in the first place. Limit yourself to one or two cards applied for during a six to 12 month period. Any more is considered a risk factor on your credit report.

Retailers often ambush you with credit card offers in the checkout line because they know you want to be polite and you might not have the chance to do some serious math. Only by running the numbers will you really know whether the store card can save you enough cash to justify a new account. 

So, are retail credit cards worth it?

Now that you know the pros and cons, how do you figure out if a retail store card is worth it? As always, you need to ask yourself a few questions and do a little math.

Do you really shop there that often? If you’re addicted to your favorite retailer, packing one of their house credit cards could save you money. If you only stop by a store once a year, you’ll need to spend a lot to make the new line of credit worthwhile. If your purchases tend to be all over the place, you’d likely fare better with a cash-back credit card which rewards all purchases you make. Some of these cards even offer bonus rewards in specific categories, which could be more beneficial than a store credit card. 

Will the costs outweigh the short-term discounts? A department store like Sears or Macy’s may offer a 10% “shopping pass,” but a higher APR could erase your savings if you let your balance ride for more than a month.

Find out what the APR rate is and add in any fees or minimum purchases required by the card. Then compare that with your potential store savings to make sure everything balances out. Are you going to have to spend more money than you normally would in order to earn the perks and discounts? If that’s the case, the card probably isn’t worth it. 

Can you manage another monthly bill? You may be a whiz at paying your favorite credit card on time every month, but many of us lose track of new bills. If you fear you might miss payments, it’s probably best to decline a new retail credit card offer.

Performing math is a lot to ask when you’re at the checkout counter with an armload of new purchases.  Retailers carefully design their stores to inspire you to purchase more. Sticking to a set budget and researching prices in advance can prevent a snap decision that could ruin your credit.  Never sign on for a card without reviewing the fine print and finding out what you are signing up for. It might take away some of the fun of a shopping splurge, but in the long run you’ll be happier because you safeguarded your credit, and the benefits of having good credit far outweigh short-term savings. 

Why you might consider a general-purpose credit card instead

Retail credit cards can be good if you regularly shop at a specific store, so how are they different from general-purpose cards? First off, most retail credit cards can only be used at that retailer. With a general credit card, you can make purchases almost anywhere. You might only earn rewards on certain purchases, but you can still use the card wherever credit cards are accepted. If you shop certain places often, a regular credit card can still benefit you as many cards offer bonus rewards in certain categories. For example, say you do most of your shopping at U.S. supermarkets. If that’s the case, you could really benefit from a card like the CardName discontinued which offers cardholders 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases, then 1%. That’s in addition to 6% on select U.S. streaming services, 3% cash back at U.S. gas stations and transit, and 1% on other purchases. As you can see, there’s a lot of potential for cash back if you regularly spend in these categories. Whether you regularly shop in specific categories or your spending habits tend to be all over the place, there are a plethora of credit cards available to meet your individual wants and needs. You can use our credit card comparison tool to help find a card that’s right for you.  

This is only one perk of general-purpose credit cards. Many credit cards offer mega welcome bonuses to new cardholders to help get membership started off on the right foot. Most often these bonuses far exceed the welcome bonus of any store credit card – $200 cash back is surely more appealing than a 10% discount and free umbrella. 

Another advantage is that general credit cards often have much higher credit limits than you’ll find with store credit cards. Some cards even offer 0% intro APR periods. Sure, some retail credit cards might offer some sort of perk that allows you to pay off your purchases over time, but a 0% intro APR offer with a general credit card gives you the opportunity to pay off a wide variety of purchases over time, interest free. Same goes if you have an existing balance you need to transfer. Some credit cards offer balance transfer periods which allow you to pay off existing balances within a certain time frame without worrying about interest.

A retail credit card to your favorite store can be a nice addition to a more general credit card, but if you’re looking for more flexibility in your card use, general credit cards are likely the better way to go. See our list of best credit cards to learn more. 

Benjamin Pape
Cardratings Contributor

Ben has been a credit card enthusiast for over seven years. With extensive knowledge in card benefits and travel partnerships, Ben has used his expertise to travel around the world with points and miles....Read more

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