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Pros and Cons of Retail Store Credit Cards

When you’re looking to make a big purchase, it can be tempting to apply for a store credit card. Store cards can seem especially appealing if you’re offered a significant discount at the checkout once you’re approved. 

But before you sign the dotted line, you should understand how commercial credit cards can affect your credit score and budget, and how they differ from their more general counterparts. 

Depending on your situation and what you plan to use it for, having a store credit card comes with a number of pros and cons. 

Pros of Retail Store Credit Cards

Retail store credit cards aren’t necessarily good or bad. They just suit certain borrowers better than others. Retail store credit cards typically come with the following benefits: 

1. Easier Approval

In general, retail store credit cards are easier to obtain than regular credit cards. This is because they come with less flexibility. For example, store credit card issuers tend to: 

  • Charge higher annual percentage rates (APRs) 
  • Offer low credit limits
  • Limit use to one store or a group of stores

Because of these restrictions, retail credit cards often come with a more lenient approval process, which is helpful for anyone with limited credit history or with a less-than-perfect credit score

2. They Help to Repair and Build Credit

Because store credit cards are easier to get, and most report to credit bureaus, they can help to build your credit history and repair your credit score

A store credit card can be useful if: 

  • You have little to no existing credit history
  • You want to rebuild poor credit
  • You want to increase your credit score
  • You need more credit diversity

3. Store-Specific Rewards

Department store credit cards typically come with store-specific rewards. For example, Target’s REDcard will get you 5% off Target purchases made online and in-store. Walmart’s Rewards Mastercard offers the same rewards for Walmart shoppers. 

If you tend to shop at a particular store frequently, you could get more benefits by using their store card than your debit card or a traditional rewards credit card

The same goes when you plan to make a single large purchase at a store. If the sign-up bonus or rewards program outweighs any costs associated with the new card, you could end up saving big. 

4. Most Have No Annual Fees

Another benefit of retail store credit cards is that many of them don’t charge you an annual fee. If you plan to pay off the purchase before any interest charges are accrued, and you got a discount or reward for signing up, this boosts your benefits even more. 

This means there’s typically no cost to keeping a store credit card on standby, even if you use it only occasionally, as long as you pay off the balance. 

5. Interest-Free Plans

Many department store credit cards offer interest-free financing to cardholders for a certain period of time. For example, some may offer interest-free financing for the first 12 months, or a no-interest payment plan based on a minimum monthly payment over a two-year period. 

This is helpful if you’re on a budget and need to stick to a certain spending limit each month as opposed to making a large purchase in full all at once. However, if you carry a balance beyond the grace period or you make a late payment, you could face extremely high interest rates. 

If you know you can pay off your balance before the interest-free period is over, a store credit card could be a great option for you. It’s a useful feature if you have to make a purchase that can’t wait and you don’t have an emergency fund

6. Credit Diversity

If you’re trying to build or repair your credit, you may already know that banks and other lenders like to see credit diversity, or different kinds of borrowing. This can be in the form of a mortgage, car loan, personal loan, traditional credit card, and store credit card. 

Having more than one type of credit on your report helps to show potential lenders that you are responsible when it comes to your personal finances. And it demonstrates that you can handle different types of loans — not just credit card debt. 

Having a store credit card is one way to expand your credit diversity because it’s slightly different from a regular credit card. 

Cons of Retail Store Credit Cards

Despite their benefits, department store credit cards aren’t for everyone. Most come with the following cons: 

1. High and Deferred Interest Rates

It’s no secret that retail credit cards come with higher APRs than regular credit cards. 

According to the Federal Reserve, in 2021, the average interest rate for a general credit card was 15.91%. Compare that to the interest rates of some of the most popular retail credit cards and you can see a big difference: 

  • Amazon Rewards Visa Signature Card: 14.24% to 25.99%
  • Costco Anywhere Visa: 19.75%
  • Target REDCard: 22.90%

Some retailers charge even more, hitting interest rates over 35%. 

If you don’t pay off your credit card before any interest charges are applied, that’s a significant amount to pay on top of what you already owe. 

Most retail credit cards also defer interest, which means they’ll offer you a grace period in which you can pay off the loan without penalty. But if you don’t pay off the debt before the due date, there’s a chance your interest charges could be backdated to the beginning of the loan. 

That can result in hundreds of dollars worth of interest charges depending on the initial cost of your purchase. 

Don’t apply for a store credit card unless you’re confident you can pay off the balance fully in time. 

2. Low Minimum Payments

Store credit card lenders make money off the interest they charge you. When you fail to pay off your balance within a grace period, it turns into revolving credit, which means it will continue to accrue interest until it’s been paid in full. 

Because of this, store credit cards typically come with low minimum payments, which extend the length of your loan and result in additional interest charges. 

If you get a store credit card, don’t just pay off the minimum payment each month. Put as much toward it as you can to reduce your interest charges and clear the card balance sooner. 

3. Fewer Rewards

Rewards credit cards from major issuers like American Express or Chase come with a variety of rewards, from cash back to travel points, depending on which card you get. 

Retail store credit cards, however, don’t often come with a wide variety of benefits. Most are specific to the store associated with the credit card and they can’t be used anywhere else. 

For example, many retail credit cards offer rewards points, but you can only accrue and use them on purchases made in that particular store. In most cases, you can’t use them for balance transfers, monthly subscription services, or to pay your bills. 

4. Limited Long-Term Value

Because many store credit cards are used to make a single purchase, they offer little long-term value. 

When evaluating your credit report, most banks and lenders like to see that you have proven history with your credit cards and loans. Unfortunately, if you only use your store credit card once, it doesn’t give you much in terms of credit history. 

The same goes for many of the benefits retail credit cards issuers offer, such as discounts on your initial purchase or a 0% APR for the first six months. Once you’ve used up any limited perks or promotions the card offers, it usually doesn’t make sense to use it for future purchases. 

5. It’s Easy to Overspend

When you walk into a store with cash in hand and a shopping list, you know you can’t spend beyond your budget. But when you have a retail store credit card, there’s more money at your disposal. And, it may even come with rewards. 

This can encourage you to overspend by giving you additional spending power. 

For example, if a store only offers cash back after a certain spending limit, you may be enticed to make larger, unnecessary purchases just to meet that threshold. But, doing so will only increase your debt and make it harder to pay off the balance before any interest charges are applied. 

6. Low Credit Limits

Because of the increased risk retail credit card companies take with offering easier approval, they tend to provide lower credit limits than regular credit cards. These cards may cap the amount you can charge to them below the price of a major purchase.

That means you may still have to cover the rest of a large purchase with cash or another credit card. And, you’ll need to pay your balance down before you can make additional purchases, which can affect whether you reach the rewards threshold or not. 

If you don’t have the extra cash or credit you need to cover the entire purchase, you may not be able to make a large purchase with a low-limit store credit card alone. 

7. Credit Score Impact

Retail store credit cards affect your credit just as much as any other credit card. When you apply, there will be a hard inquiry on your credit report. And, if you apply for multiple store credit cards at once, it will significantly impact your credit score. 

Before submitting an application for a new credit card, review its perks and benefits, as well as its limitations, to ensure it’s worth having on your credit report, even if your application is denied

Final Word

Retail store credit cards aren’t for everyone, but they are well-suited to certain situations. If you’ll benefit from significant savings or you need to build or repair your credit, they could be a great option for you — as long as you know you can pay off your balance ahead of any interest charges. 

Before applying for a commercial credit card, think about what you want to use it for. Shop around and explore your options to ensure you find the best credit card for your situation so that you maximize your rewards instead of carrying high-interest credit card debt

Brittany Foster is a professional writer and editor living in Nova Scotia, Canada. She helps readers learn about employment, freelancing, and law. When she's not at her desk you can find her in the woods, over a book, or behind a camera.