What Can You Expect From Store Credit Cards?
Here’s what store credit cards typically offer:
Rewards earning: All but one of the store cards surveyed earn rewards for purchases with the retailer. More than half of them earn five points per dollar or more on retailer purchases.
APR: Minimum annual percentage rates for store cards vary widely. Just one offers a minimum APR of 14.99% or lower. About 36% have minimum APRs between 15% and 18.99%, and the rest have minimum APRs between 19% and 30.98%.
Annual fee: Most store cards charge no annual fee; only two of the cards surveyed charge an annual fee.
What Can Store Cards Offer?
Store credit cards reward loyalty with access to deals and other benefits. Perks tend to vary, but store cardholders could receive discounts, earn rewards, get exclusive offers and leverage special financing.
Retail store cards typically have low barriers to approval but above-average APRs. You may qualify for special financing with a store credit card, but that type of deal only works if you pay off your balance before the promotional period ends.
Store card use. Some store credit cards are closed-loop cards, which means a card can be used only in a single store or network of stores. That’s not necessarily a bad thing, as you’ll typically earn the best rewards directly with that retailer. But this could be a problem if you’re planning to use a store card for everyday purchases.
Open-loop store credit cards can be used almost anywhere. They have a card network logo on them, such as Visa or Mastercard.
Rewards and discounts. Typically, the biggest draw of a store credit card is the chance to earn rewards or score discounts. Store cards frequently feature a sign-up bonus, usually 10% or more off your first purchase with the card, or a cash-back reward after you spend a certain amount within three months of opening your account.
You may reap ongoing rewards with a store credit card, and some open-loop cards offer rewards on all purchases, not just with specific retailers. Earning rates with store cards can be higher than other types of rewards cards. It’s not unusual for store cards to earn five points or more per dollar with their brands.
A word of caution: Although earning rates with store credit cards can be above average, pay attention to redemption rules. Unlike cash-back or general points-earning rewards cards, store cards might restrict you to redeeming rewards with particular retailers.
“Make sure the rewards are valuable and useful to you,” says Alex Miller, founder and CEO of travel rewards website UpgradedPoints.com. “Look for store rewards that equal at least 2% cash back and have flexible rewards in cash that you can use on your schedule.”
Cardholder promotions. Some store cards have special promotions for cardholders throughout the year. You may get early access to sales or exclusive discounts.
Easier approval. Retailers know that store credit cards encourage loyalty, so they’re inclined to make card approval easier for consumers than other types of cards. Although some store credit cards require good or excellent credit, you may be approved for store cards even if you have below-average credit.
“Store cards generally offer fairly liberal approval criteria,” says John Ulzheimer, a credit expert who has worked at Equifax and FICO. “As such, they are a decent option for people who are new to the credit system and are looking for a way to establish or rebuild their credit reports and credit scores.”
Low credit limits. Because store credit cards may have low barriers to approval, they typically don’t extend large credit lines to cardholders.
Potentially high APR. With typically lower credit standards, retail store credit cards may have higher interest rates than other types of cards. “If you carry a balance on a store card, the interest you pay will likely exceed any discount or deals you got from the retailer for using their card,” Ulzheimer warns.
Special financing. Some store cards give cardholders special financing for major purchases: for example, a 0% interest rate for six months on purchases of at least $299. However, these are usually deferred interest offers, which means if you don’t pay off your purchase by the end of the promotional period, interest will apply on the whole purchase, not just the remaining balance.
No annual fee. Most store cards have no annual fee.
Minimal cardholder benefits. Regular rewards credit cards may come with cardholder benefits, such as extended warranty coverage, purchase protection or an auto rental collision damage waiver. Although benefits like these may be available with some store credit cards, they are less common.
Can a Store Credit Card Pay Off?
If you shop frequently at a particular retailer, a store credit card could return more value than another card, especially if you can use special cardholder savings and rewards.
“Look for discounts, promotions and store benefits that are better than you can get with an everyday card,” Miller says. “You don’t need a store card that offers 1% or 2% cash back if you have a general card that already does that everywhere.”
Store credit cards promising 5% or more cash back may beat the rewards rate for other cards. For example, with the Amazon Rewards Visa Signature Card, cardholders who are Amazon Prime members can earn 5% cash back on purchases at Amazon.com and Whole Foods.
While some cards with rotating bonus categories offer 5% cash back at Amazon.com, you will receive that rate for just one quarter of each year. In that time, you will be able to earn the bonus rate, usually on only your first $1,500 in purchases. The Amazon Rewards Visa Signature Card earns 5% cash back on Amazon.com purchases year-round, with no limit if you’re an Amazon Prime member.
If you’re planning to take advantage of a sign-up discount, you could save on your purchases. For example, American Eagle allows a 20% discount on qualifying purchases when you open an AEO Connected credit card. If you’re planning to spend $500 on a back-to-school wardrobe, that discount is worth $100. But the same value might be available with a regular cash back card.
You can earn that bonus anywhere, not just by spending at American Eagle stores. But the AEO Connected credit card offers cardholder discounts, such as a 20% off birthday coupon and free standard shipping. If you are a fan of American Eagle brands, this card could provide ongoing value that you can’t get with other cards.
Special financing also may be available with store credit cards, providing a way to pay for purchases over time with no interest. The Lowes Advantage Card has a special financing offer of 0% interest on purchases of at least $299, if paid in full within six months.
You could use this deal to buy appliances, tools or renovation materials and split the cost over six months. But if you haven’t paid off the balance when the promotional period is over, you will be charged interest from the purchase date.
When Is a Store Credit Card a Good Idea?
Store credit cards aren’t a smart choice for all consumers, but they can offer solid value in some circumstances, such as:
- You frequently shop with a particular retailer, and the rewards value exceeds what you can earn elsewhere.
- You need help building credit and would prefer a store card over a secured credit card that requires a security deposit to open the account.
- You plan to pay your balance on time each month to avoid interest charges and late fees.
- You can take advantage of special financing and pay off your balance within the promotional period without incurring interest charges.
- You can avoid the temptation to overspend.
What’s the Best Way to Use a Store Credit Card?
Plan ahead to maximize the value of a store credit card. Ideally, you’ll choose a card that has rewards, discounts or other perks with a retailer where you typically shop. But read the fine print before you get to the store, and make sure you manage your card responsibly to avoid fees and interest that can erode your card’s value.
Choose a card from a store where you shop regularly. That way, you can get savings on purchases you were likely to make anyway.
Understand card terms before you sign up at the register. You might be tempted by the discount you’ll get if you sign up for a card at checkout, but will you read the fine print in that moment? Probably not.
Plan ahead, researching the card’s rewards value, fees, interest and other important terms, and then hit the store, fully informed and ready to apply. Even if you just read the card’s information box at the top of the terms and conditions, you will get a quick overview of applicable fees and how interest applies.
Time your account opening. If the store card you’re interested in offers special financing or a sizable discount on purchases the day you sign up, open your account when you’re planning to make a major purchase. With a clothing retailer, you might want to use the sign-up discount when you’re updating your wardrobe. Or, with a hardware store card, you could save if you take advantage of special financing on appliances.
Plan your purchases. Pay attention to special deals for cardholders throughout the year, and plan your purchases around them. Putting off the purchase of a TV or a new pair of shoes could be worth it if you can take advantage of an extra cardholder discount.
Limit your spending. A store credit card makes shopping – and worrying about charges later – simple. Put the brakes on before you unleash your new spending power at your favorite store.
Remember, you have to pay for those purchases eventually, and if you don’t pay off your charges each statement period, you’ll likely be subject to an above-average interest rate. Resist the temptation to spend more than you normally would, and only charge as much as you can reasonably afford to pay off.
Never max out your credit line. Even if you can pay off your purchases each statement period, putting major or even minor spending on your store credit card could be a problem for your credit rating. Your credit utilization ratio – the percentage of your credit line you actually use – is a major factor for your credit rating.
If your credit utilization exceeds 30%, your credit score could drop. That means if you have a store credit card with a $500 credit limit, spending more than $150 during a statement period could hurt your credit.
Limit your card costs. Store credit cards often have no annual fee, so if you pay your bill in full and on time each statement period, you could get the perks of a store card with no cost. If you’re interested in a card with an annual fee, do the math to make sure it can supply enough value to offset the fee each year in rewards, discounts or cardholder benefits. And setting up reminders and automatic payments is a good idea so you won’t have to pay late fees.
“Store cards often have high interest rates and penalties for late payment,” Miller says. “Only use store cards if you are sure you can pay the bill in full each month.”