What Is a Store Credit Card? Brief Overview of Benefits & Risks
Are you looking for ways to save money while shopping?
If so, you may have been offered a store credit card at a checkout counter. Store credit cards have grown in popularity in recent years. They offer exclusive discounts, reward programs, and special financing offers, among other benefits.
However, these cards also come with risks, such as high-interest rates and the temptation to overspend. In this article, we’ll take a closer look at what store credit cards are, their benefits and risks, and tips for using them responsibly.
Understanding Store Credit Cards
Definition of a Store Credit Card
A store credit card is a credit card that is specific to a retailer or a retail chain. It can be used only at that store or group of stores. Store credit cards are often marketed to consumers as a way to get discounts and other perks for shopping at that store. In essence, they are a loyalty program that entices consumers to shop more frequently at a particular store.
Note that in recent years, the above definition’s lines have been blurred and many retailers now offer a credit card that functions as a regular credit card, that can be used anywhere that credit card’s network (like Visa or Mastercard) is accepted, but also earn the user rewards at the issuing retailer’s store. An example of this is the TJ Maxx Credit Card / Marshalls Credit Card (the Platinum MasterCard version), see open-loop description below.
Store credit cards can be a great option for frequent shoppers who want to save money on their purchases. They offer a variety of benefits, including exclusive discounts, reward points, and sign-up bonuses. However, it’s important to also be aware of the potential downsides of store credit cards, such as high-interest rates and fees.
How Store Credit Cards Work
When you apply for a store credit card, the retailer running the program will usually check your credit report and score. If you are approved, you’ll receive a line of credit that can be used to make purchases at that store or its affiliates. Typically, you will be required to pay off the balance in full each month or make minimum payments with interest, just like a regular credit card. Retailers work with banks like Synchrony and Comenity in the background, who are the real entities issuing and managing the credit card.
One of the main benefits of store credit cards is that they often offer incentives for using them. For example, some store credit cards offer cash back or reward points for every purchase made with the card. Others offer exclusive discounts or coupons that can be used to save money on future purchases.
Types of Store Credit Cards
There are two main types of store credit cards: closed-loop and open-loop. Closed-loop store credit cards can only be used for purchases at the retailer that issued them. Open-loop store credit cards can be used anywhere that the card issuer’s brand is accepted.
Closed-loop store credit cards are popular among retailers because they help to build customer loyalty. By offering exclusive discounts and other perks, retailers can encourage customers to shop more frequently at their stores. Examples of closed-loop store credit cards include Macy’s, Victoria’s Secret, and Best Buy.
Open-loop store credit cards, on the other hand, are more versatile. They can be used at a variety of different retailers, which makes them a good option for consumers who want a credit card that can be used for multiple purposes. Examples of open-loop store credit cards include the Amazon Prime Rewards Visa Signature card and the Target REDcard.
Overall, store credit cards can be a great way to save money on your purchases and earn rewards for your loyalty. However, it’s important to be aware of the potential downsides of these cards, such as high-interest rates and fees. If you’re considering getting a store credit card, be sure to read the terms and conditions carefully and compare the benefits and drawbacks of different cards before making a decision. Some store credit cards also make their rewards difficult to redeem and/or make the expire if not used quite quickly, that’s a common “trick” to watch out for.
Benefits of Store Credit Cards
If you’re a frequent shopper at your favorite retailer you may want to consider applying for a store credit card. Not only can these cards offer exclusive discounts and promotions, but they can also help you build your credit history and earn rewards for your purchases.
Exclusive Discounts and Promotions
One of the most significant benefits of a store credit card is the exclusive discounts and promotions that are available only to cardholders. These discounts can be substantial, sometimes up to 20% off your purchase. If you’re a frequent shopper at a particular retailer, these discounts can add up over time.
For example, if you’re a fashionista who loves to shop at your favorite clothing store, having a store credit card can help you save money on your purchases. With exclusive discounts and promotions, you can buy more of your favorite clothes without breaking the bank.
Of course, the flip side of this is that you may be more inclined to only shop at the store(s) where you have a credit card, instead of shopping around for the best values and deals (which is exactly why stores offer these programs).
Reward Programs and Points
Many store credit cards offer reward programs and points for purchases. These points can be redeemed for discounts, free merchandise, or even sometimes cashback.
Our experience is that the rewards are typically around 5-10% of purchases, usually significantly less if it’s cash back. Most rewards programs only allow to use of those points at the same store where the credit card is issued from.
Building Credit History
If you are new to credit or have a limited credit history, getting a store credit card can be a good way to start building your credit. One of the factors that affect your credit score is the length of your credit history, and having a store credit card can help you establish that history.
Store cards tend to be easier to be approved for than most other regular credit cards, so they can be an ok place to start. But make sure you pay off the balance in full every month because they also tend to have higher interest rates and fees than general-use credit cards.
For example, if you’re a recent college graduate who wants to start building your credit, having a store credit card can help you establish a positive credit history. By making on-time payments and keeping your balance low, you can improve your credit score over time.
Special Financing Offers
Many store credit cards offer special financing offers, such as zero percent interest for a certain period or deferred interest. These offers can be beneficial if you need to make a big purchase and want to pay it off over time without accruing interest. However, it’s important to read the fine print and make sure you understand the terms and conditions of the offer.
For instance, if you’re in the market for a new TV, having a store credit card can help you take advantage of special financing offers. With zero percent interest for a certain period, you can pay off your TV over time without worrying about accruing interest.
Typically, we see with special financing that if you don’t pay off the full balance by the end of the special period, you will be charged interest from the purchase date, not from the date you missed a payment, so make sure to really stay on top of things with this type of offer.
Risks of Store Credit Cards
While these cards can be tempting, it’s important to consider the risks associated with them before applying.
High Interest Rates
One of the biggest risks of store credit cards is their VERY high-interest rates. In many cases, these interest rates can be significantly higher than traditional credit cards, which means that if you don’t pay off your balance in full each month, you could end up paying a lot in interest charges. This can make it difficult to get ahead financially and can even lead to debt if you’re not careful.
In our experience, most store credit cards’ interest rates tend to hover around 30% (per year)!! As far as we know, this is the most expensive type of loan or debt. It can quickly make your purchases much, much more expensive.
It’s important to carefully review the terms and conditions of any store credit card you’re considering before applying. Make sure you understand the interest rate and any other fees associated with the card, as well as the rewards and benefits you’ll receive.
Another risk of store credit cards is their limited usability. Unlike traditional credit cards, which can be used at a wide range of retailers and merchants, store credit cards can only be used at the specific retailer or group of retailers that issued the card. This can be inconvenient if you need to make a purchase elsewhere and don’t have another credit card that’s widely accepted.
Before applying for a store credit card, consider whether you’ll be able to use it frequently enough to make it worth your while. If you only shop at the retailer occasionally, or if you prefer to shop at other retailers, a store credit card may not be the best choice for you.
Impact on Credit Score
As with any credit card, having a store credit card can affect your credit score. If you apply for multiple store credit cards or make late payments, this can negatively impact your credit score. On the other hand, if you use your store credit card responsibly and pay off your balance in full each month, it can help you build a good credit history.
It’s important to be mindful of your credit score and to take steps to protect it. This may include limiting the number of credit cards you have, making payments on time, and monitoring your credit report regularly.
Temptation to Overspend
Finally, one of the biggest risks of store credit cards is the temptation to overspend. Store credit cards can be tempting to use, especially if you’re offered a discount at the checkout counter. However, it’s important to remember that the rewards and discounts may not always be worth it if you end up overspending or carrying a balance month to month.
To avoid overspending, it’s important to set a budget and stick to it. Only use your store credit card for purchases that you would have made anyway, and avoid making impulse purchases just because you have the card.
Tips for Using Store Credit Cards Responsibly
Store credit cards can be a great way to save money and earn rewards while shopping, but it’s important to use them responsibly. Here are some tips to help you make the most of your store credit cards:
Pay Off Balances in Full Each Month
One of the most important things you can do to use your store credit cards responsibly is to pay off your balance in full each month. By doing so, you can avoid accruing interest charges and keep your credit score healthy.
Not only will paying off your balance in full each month save you money on interest charges, but it can also help you maintain a good credit score. Late payments and high balances can negatively impact your credit score, so it’s important to stay on top of your payments and keep your balances low.
Be Mindful of Credit Utilization
Credit utilization is the percentage of your available credit that you’re using, and it’s an important factor in determining your credit score. To maintain a good credit score, it’s recommended that you keep your credit utilization under 30%.
When it comes to store credit cards, it can be tempting to use them to their full extent to take advantage of discounts and rewards. However, it’s important to be mindful of your credit utilization and avoid using your store credit cards excessively.
Additionally, many store credit cards have low credit line limits. In our experience, they can start as low as just a couple of hundred dollars. If you don’t have many other credit cards, then spend most of your credit line, you can easily have a very high credit utilization ratio.
Avoid Applying for Multiple Cards at Once
While it can be tempting to apply for every store credit card that comes your way, doing so can negatively impact your credit score. Each time you apply for a credit card, it results in a hard inquiry on your credit report, which can lower your score.
Instead, only apply for store credit cards that you know you’ll use frequently and can use responsibly. Before applying, make sure you understand the terms and conditions of the card, including the interest rates and fees.
Keep Track of Promotional Offers and Deadlines
Many store credit cards offer special financing offers or reward programs that can help you save money while shopping. However, it’s important to keep track of the deadlines and pay off your balance before the promotional period ends.
If you don’t pay off your balance before the promotional period ends, you could be hit with high-interest charges or lose out on rewards. To avoid this, make sure you understand the terms and conditions of any promotional offers and set reminders for yourself to pay off your balance on time.
This is especially important to watch out for on special financing (like 0% interest for a period of time such as 6, 12, or 24 months), where if you don’t fully payoff the purchase by the end of the period, you will be charged interest from the purchase date.
More info on credit cards in general:
- What Happens If You Don’t Use Your Credit Card?
- Why Do Credit Cards Expire?
- Are Credit Cards Installment Or Revolving?
- Are Credit Cards Fixed Or Variable Rate?
- Are Credit Card Fees Tax Deductible?
- How Much Will A Secured Credit Card Raise My Score?
- How Much Credit Card Debt Is Too Much?
- Why Are Some Credit Cards Metal?
- Why are restaurants charging credit card fees?
- Why Can’t I Get Approved For A Credit Card With Good Credit?
- Which Credit Card To Pay Off First?
- What is credit card refinancing vs debt consolidation?
- Business Credit Card vs personal
- Secured credit card vs unsecured
- Credit Card vs. line of credit
- Credit Card alternatives
- Can you pay closing costs with a credit card?
- Can you manually enter credit card at a gas station?
- How to use a credit card responsibly
- Advantages of Credit Cards
- The Top 5 Credit Card Types You Need To Know About
- Fun Facts About Credit Cards
Check out our store credit card reviews:
- TJ Maxx Credit Card
- Marshalls Credit Card
- Container Store Credit Card
- Rue21 Credit Card
- Burlington Credit Card
- Famous Footwear Credit Card
- Forest River Credit Card
- Salon Centric Credit Card
- LensCrafters Credit Card
- Little Switzerland Credit Card
- Hanks Credit Card
- LoveSac Credit Card
- Arhaus Credit Card
- Cosmoprof credit card
- Salon Centric Credit Card
- Athleta Credit Card
- Banter Credit Card
- Plaza Tire Credit Card
- Petco Credit Card
- Synchrony Car Care Credit Card
- Tuffy Credit Card
- Express Oil Change Credit Card
- Mattress Warehouse Credit Card
- Ivan Smith Credit Card
- Pep Boys Credit Card
- Jiffy Lube Credit Card
- America’s Tire Credit Card
- Brakes Plus Credit Card
- AAMCO Credit Card
- AutoPass Credit Card
- Merlin Credit Card
Editor & Author
Cathy Gresham is a finance whiz.
After earning her MBA from The Wharton School, she has worked in strategy at some of the world’s largest and most influential financial companies for 20+ years. Notably, she has worked for the biggest credit card issuers and networks and brings an insider’s perspective to how credit card products work behind the scenes.
Cathy is passionate about personal finance and investing, and loves helping people learn about these complex topics. Her wit and humor make learning about money fun, and she’s always happy to share her knowledge with others.
Cathy enjoys spending time with her family and friends when she’s not crunching numbers or developing investment strategies. She’s also an avid runner, and can often be found pounding the pavement on her morning jog.