Pros and Cons of Store Credit Cards

Should You Get a Store Credit Card?

We’ve all been there. You’re at checkout, and the cashier offers a discount today if you sign up for the store credit card. Should you go for it? Well, it depends.

Like most credit cards, store credit cards offer a line of credit issued by a financial institution. But in this case, the institution is partnered with a specific retail brand. These cards are often restricted to one retail chain or a few related chains.

A discount and other card perks can make it tempting to open a new store credit card account at checkout. But while there are upsides to having a store credit card, there are also downsides to consider before you apply.

Quick Answer: Are Store Credit Cards Worth It?

In a nutshell, store credit cards may be worth it if you’re a frequent customer who consistently pays your bills on time, avoids carrying a balance and can take advantage of the card’s perks.

But on the flip side, a store card may not be great if you want flexible rewards, need a card with wide acceptance, or can’t take advantage of the card’s perks. And if you carry a balance, the card’s interest charges could cancel out the benefit you get from rewards or discounts.

Pros of Store Credit Cards

The main benefits of store credit cards revolve around saving money where you shop frequently, but they have a few other benefits too.

First-purchase discounts

An immediate, one-time discount upon approval is a common offer with store credit cards. This can be especially useful if you have particularly large purchase planned. However, this initial discount may not be worth it if you expect to carry a balance, since you’ll accumulate interest charges.

Easier to qualify

It’s often easier to get approved for store credit cards than regular, major credit cards. A store card can offer a chance to people who are trying to build credit and may not qualify for other credit cards. Just keep in mind that easier doesn’t mean guaranteed.

May help establish or rebuild credit

Using a store card could contribute to your credit score, if the card issuer reports to the major credit bureaus. Just remember that you’d have to practice good credit habits with the card for it to benefit your score, like watching your credit utilization ratio — which we’ll explain shortly — and paying on time, every time.

Cardholder rewards and perks

Store credit cards often feature ongoing perks, including promotional discounts, rewards programs, free shipping, special financing, or early access to sales at the store or family of stores they’re affiliated with.

Cons of Store Credit Cards

Despite having quite a few perks, store credit cards may also have downsides to consider, some of which can outweigh the potential for discounts or rewards.

Less versatile than major credit cards

Most store cards are closed-loop cards, meaning they only work at that specific store, or a group of stores. There are exceptions — some stores offer branded cards that use major credit card networks like Visa, Mastercard or American Express — but don’t expect to buy groceries, gas, or plane tickets with a department store card.

Lower credit limits

Retail credit cards frequently come with much lower credit limits than standard credit cards. Not only does this put a cap on your purchasing power, but it could also affect your credit utilization ratio, an important part of your credit score. Experts recommend keeping your ratio low by using less than 30% of your credit limit. But it can be easy to use more than that when you have a lower credit limit. For example: using $250 of a $500 credit limit would put that card at 50% utilization.

Higher interest rates

Store credit cards typically charge a higher annual percentage rate (APR) than standard credit cards. If you carry a balance month-to-month, interest charges can quickly diminish the value of any sign-up discounts and ongoing rewards.

Restricted rewards

The rewards you earn on retail cards generally apply only to purchases from that specific store or brand. Major credit cards, overall, offer more types of earning and more reward redemption options.

Store Credit Cards vs. Major Credit Cards

Wondering how store credit cards compare to major credit cards? Here’s a quick comparison of features.

Acceptance: Store credit cards are typically limited to a specific retailer or retailers. Major credit cards are widely accepted around the world, wherever that credit card network is accepted.

Reward flexibility: With store cards, you can generally only earn and use rewards at the associated store. Meanwhile, all sorts of rewards structures exist among major credit cards. There are major cards that earn rewards on all purchases at a fixed rate and cards that earn a higher rate for certain categories. And the rewards themselves can vary across cards, too. Points, miles and cash back are some common reward types with major cards.

Credit limits: Credit limits tend to be lower for store credit cards compared to traditional credit cards.

Approval standards: It’s often easier to be approved for a store credit card than for traditional credit cards, which may have stricter requirements.

When a Store Credit Card May Make Sense

A store card may be a useful tool if you’re a frequent, highly loyal shopper at a specific retailer, especially if you pay on time and avoid carrying a balance. A one-time promotional discount upon approval can be a good way to take advantage of a store card if you have a major, pre-planned purchase.

And if you’re building or rebuilding your credit and think you might not be approved for a major card, a store card can also be a good foot in the door.

When To Avoid a Store Credit Card

If you regularly carry a balance or have concerns about overspending, you may want to pass on a store credit card. If you don’t shop at the store frequently, you may also want to weigh whether discounts or rewards are worth the temporary hit to your score when the lender checks your credit as part of the approval process.

How To Use a Store Credit Card Responsibly

To get the most out of a store credit card, it helps to stick to some smart credit habits.

Pay your balance on time

Your payment history represents the most impactful factor in your overall credit health, so it’s essential to pay at least the minimum amount due by the due date. Setting up AutoPay can help you ensure that you don’t miss a payment.

Keep your balance low

High statement balances can negatively impact your credit utilization, which is another important factor in your credit score. Experts recommend using less than 30% of your available credit.

Read the card terms before applying

Before you sign up, read through the details on APRs, hidden fees, and promotional financing, as well as how the card’s rewards work.

Also, be mindful of the terms of deferred interest promotions. With these, you need to pay off the full balance by the end of the promotional period to pay no interest. Otherwise, you’ll owe interest on the entire original amount — not just the remaining balance.

Common Mistakes To Avoid With Store Credit Cards

Store cards can be a great tool, but only if you stay mindful of potential pitfalls like these, which could entirely offset their benefits.

Applying just for a one-time discount

Sometimes, a discount for signing up might not be worth the long-term commitment of a new credit account. Especially if it’s a small discount, a small purchase, or both. You may want to weigh the benefit of that discount against the temporary ding to your credit score from a credit check. And you may still have to manage the card on occasion, like setting up a secure online password, keeping your address up to date and taking other steps to protect yourself from fraud.

Carrying a balance

How do you use your card? Do you anticipate carrying a balance or paying off your card in full every month? Carrying a balance and allowing it to roll over month-to-month can rack up interest charges, which could likely nullify the potential rewards and discounts offered by the card.

Maxing out a low credit limit

Because retail card limits often tend to be lower, it may be easier to use up a large portion of your credit line or even max out the card. This can drive your credit utilization ratio up beyond the recommended 30%. You’d want to keep your balance relatively low to avoid this.

FAQs About Store Credit Cards

Do store credit cards help build credit?

Yes, store cards may help build credit if the issuer reports your account activity to the major credit bureaus and you use the card responsibly. On the other hand, missed payments or high balances could hurt your credit score.

Are store credit cards easier to get?

Some retail cards can be easier to qualify for than traditional, major credit cards. But approval isn’t guaranteed, as the final decision depends on your specific credit profile and the issuer’s requirements.

What is the biggest downside of a store credit card?

The biggest downside of a store credit card depends on your particular situation and habits, but some primary downsides can include high APRs, limited usability and low credit limits.

What is the difference between a store credit card and a regular credit card?

Store credit cards are tied to a specific retailer and are often closed-loop lines of credit, meaning they only work at that merchant or a few related merchants. Regular credit cards operate on major networks like Visa or Mastercard and can typically be used globally.

Bottom Line

For some, store credit cards can be a great tool, thanks to their discounts, rewards and other loyalty perks. For others, they can be a potential trap, with their high APRs and relatively low credit limits.

But for most people, they’re going to fall somewhere in the middle — a valuable asset if used mindfully and more trouble than they’re worth if not.

Before you apply for a store credit card, it’s best to weigh the potential pros and cons and consider what you’d really get out of it.