Are Store Credit Cards Worth It?

You’ve likely experienced an overeager cashier or floor manager trying to sell you on the benefits of their store’s credit card. But are store credit cards worth it? Keep reading to find out what store credit cards entail, if they are right for you, and their pros and cons.

WHAT IS A STORE CREDIT CARD?

Store credit cards are lines of credit offered by most major retailers for use in their stores and are designed to both retain customers and reward them for their brand loyalty.

Applying for a select few retailer credit cards can be a great way to build your credit. They are typically fairly easy to obtain, with most consumers being approved for at least a low credit limit. Store credit cards can also be an effective way to improve your credit score as long as you use them responsibly and pay off the balance in full every month whenever possible.

IS A STORE CREDIT CARD RIGHT FOR YOU?

If you frequent a particular store fairly often — or plan to make one or two very large purchases there — a store credit card can be a smart financial move. Most people can comfortably open two or three retail credit cards without taking a major hit to their credit scores or their wallets.

However, if you already have a large number of credit cards open from other financial institutions and retailers, opening yet another store card could result in a fairly significant dent in your credit score.

In addition, if you know that you have trouble with impulse purchases and tend to run up the balance or use all your available credit on every card you own, you might want to avoid store credit cards except in very rare instances.

PROS AND CONS OF STORE CREDIT CARDS

So how can you evaluate if store cards are worth it? Let’s take a look at the pros and cons of retailer credit cards below.

Pro: Store Promotions

Many major retailers frequently have special discounts, coupons, and sales just for their cardholders. For example, Macy’s has their Star Rewards program, which rewards shoppers with Star Money Bonus Days and 25% off Star Passes, and Target cardholders enjoy 5% savings on every single purchase, plus other perks such as free shipping.

Pro: Sign-Up Bonuses

Most stores also offer a sign-up discount that could be as much as 20% off your purchase. If you plan it right, you can save a significant chunk of change on a purchase. (For example, don’t sign up for a card on a day when you are only spending $50 at the store. Instead, wait until you’re about to plunk down $1,000 on Christmas gifts or that new computer.)

Pro: Savings on Major Purchases

Store credit cards can be a great way to obtain financing for large purchases such as appliances, electronics, and other major expenses. If you plan ahead and get these items on sale, you can end up saving a great deal, especially when combined with a store promotion.

As mentioned above, many stores offer a significant discount on your first purchase the day you open the card, resulting in savings of even hundreds of dollars.

Pro: Low Intro APR

Some retailers offer a low or no introductory annual percentage rate (APR) for the first several months after you’ve obtained the card. This can be another way to save on major purchases. For example, Sears offers a 0% APR for the first 12 months, perfect for financing that new washer and dryer set.

Con: Lack of Flexibility

Most store credit cards can only be used at that particular retailer and any other stores under the corporate umbrella of brands. (For example, a Gap credit card can also be used at Old Navy and Banana Republic.)

Occasionally, you may find a retailer who is the exception to this rule, but most of the time, you will be locking yourself into a card that you can only use while shopping at a particular store.

Con: Credit Limit

Your credit limit will depend on your credit score. The average store credit card limit is between $1,000 and $2,500. While this may be plenty if you’re hoping to score some new boots from Macy’s, it might not be enough if you’re wanting to use your Lowe’s credit card to purchase your entire kitchen appliance suite.

Con: Annual Fees

Some store credit cards come with annual fees, so watch out for these and other hidden charges such as transaction fees, late payment fees, and inactivity fees. The best store credit cards, however, will not charge any annual fees, so this is something to look for when making your selection process.

Con: High Interest Rates/APR

The interest rates on store credit cards are notoriously high — the average rate is just under 25%. This is higher than the standard rates for credit cards from other sources such as banks or credit unions, so if you are planning a major purchase from a retailer that doesn’t offer a low introductory APR, you might be better off financing that expense with a different type of card.