When checking out at department stores this holiday season, you can expect to receive a smile and a sales pitch. Store credit cards are moneymakers for businesses, and clerks are likely to dangle a nice discount in front of you in the hope that you’ll apply.
The discounts offered on store merchandise and other rewards are often tempting — and many of us take the bait. But are store credit cards a good deal?
Pros of store credit cards
Store credit cards aren’t all bad. In fact, they can come with some nice benefits. As we see it, there are four major reasons to obtain a store credit card.
- Discounts: Not only do you typically receive an initial 10% to 20% discount on a purchase when you sign up, but you also may be in line for extra discounts all year long. Store credit card holders may be the first to receive special coupons or gain access to exclusive sales events as a reward for their loyalty.
- Flexibility: Some store cards are affiliated with one of the major credit card companies. That means your department store card also can be used for purchases elsewhere. As a bonus, depending on the retailer’s program, you may even earn rewards points to be redeemed as future discounts at the store.
- Credit benefits: If your credit score could use some polishing, a store credit card may be able to help. Consistently using and paying off the card will help establish a pattern of good credit habits that can, in turn, boost your score.
- Financing options: Finally, some store credit cards can be used to obtain 0% financing offers. Stores may give you 18 months or more interest-free to pay off a major purchase made with their credit card.
Cons of store credit cards
While there are definitely some nice perks attached to store credit cards, all is not rosy. Here is a look at some negatives attached to these accounts.
- High interest rates: By far, the biggest negative associated with a store credit card is the interest rate. A 2019 CreditCards.com survey found the average APR on America’s biggest retail-branded credit cards has increased to a hefty 27.52%. And remember that 0% financing we discussed? If you don’t pay off your purchase within the allotted time, many store cards go back and apply the interest retroactively. Yikes!
- Limited use: Some store cards may offer the same flexibility as a regular credit card, but others can only be used at that particular retailer. In addition, you may have a low spending limit.
- Credit damage: Your credit score gets dinged slightly every time you have it pulled for a card application, and your score will also suffer if your card balances are too high. The damage can be felt in other ways as well. When reviewing loan applications, creditors not only consider how much debt you have but also how much existing credit is available to you. If you already have enough credit to go on a $20,000 spending bender, lenders might be hesitant to give you access to more cash.
- Temptation to spend: Another negative we see with store cards is the temptation to buy more. Stores aren’t giving out cards and coupons to be nice — it’s a strategic business decision. They hope that by giving you a few perks, they’ll convince you to come to their store and blow your budget once you see all the great things they have for sale.
The bottom line
So, back to the original question: Should you apply for a store credit card? In the past, we’ve told you the answer is no.
However, if there’s a store you shop at regularly and a card gets you an extra discount, it may make sense. Just be sure you follow these two rules:
- Buy only what you would purchase if you didn’t have the card. No extra trips just because there is a “card member only” sale.
- Pay off your balance each month.
Still, you might want to check out the other credit cards on the market to find one that offers better rewards with a lower interest rate. Stop by our Solutions Center and compare the best credit cards for travel rewards, interest rates, small business, cash back and more in our credit card section.
Do you have a store credit card? What made you apply, and do you regret the decision? Tell us in comments below or on our Facebook page.
Kari Huus contributed to this post.