Are retail credit cards worth it?

“Would you like to save 15 percent off today’s purchase by opening our store credit card?” We’ve probably all heard countless versions of that pitch, whether we’re standing at a retailer’s checkout counter or shopping online — and in some cases, the pitch is good enough to convince us to open a new line of credit. While you stand to catch a short-term win with a discount, there could be details lurking in the fine print that may make you reconsider applying.

That’s why it’s important to understand what store credit cards are and how they work. In most cases, store credit cards aren’t the best credit cards on the market. They often come with higher interest rates and limited rewards options — and unless you get a co-branded retail card, you may only be able to use your store card to make purchases with a specific retailer.

Are store credit cards worth it? It depends on how you use them. Here’s what you need to keep in mind the next time someone offers the opportunity to apply for a store credit card.

What is a store credit card?

Retailers offer two types of credit cards: store credit cards and co-branded credit cards. Store credit cards — sometimes called closed-loop cards — can only be used at that particular store or chain of stores. A co-branded card, on the other hand, is an open-loop card that can be used anywhere the card network — such as Visa or Mastercard — is accepted. The card may have a particular retailer’s logo on it, but it can be used widely.

Some retailers offer both store credit cards and co-branded credit cards. Amazon, for example, offers both the Amazon Prime Store Card and the Prime Visa. The former only works at Amazon, whereas the latter can be used anywhere Visa is accepted.

Likewise, many of today’s best hotel credit cards and airline credit cards are co-branded. The Delta SkyMiles® Gold American Express Card, for example, offers rewards and perks when you book Delta flights but can be used at any retailer that takes American Express.

If you’re not sure whether you have a store credit card or a co-branded card, take a look at the logos printed directly on the card. If you only see a retailer’s logo, it’s a closed-loop card that may only be used to make purchases with that particular retailer. If you see both the retailer’s logo and a Visa, Mastercard or American Express logo, the card is co-branded and can be used anywhere.

Store credit card vs. general-purpose card

Beyond where they can be used, the biggest difference between general-purpose credit cards and store credit cards is the scope of their rewards programs. Today’s best credit cards offer a variety of rewards, including cash back, points and miles, and give you the opportunity to earn rewards on many different kinds of purchases. Some credit cards, such as travel credit cards, offer higher rewards on certain types of purchases including flights, rental cars and hotels — but none of these general-purpose cards limit your rewards to purchases made at a specific retailer.

With retail cards — including both store cards and co-branded cards — your rewards are generally awarded within the loyalty programs offered by the retailer associated with the card. Even if the card offers rewards for purchases at other retailers, the highest rewards are nearly always associated with purchases made at the specific retailer. And, frequently, getting the most value when redeeming those rewards requires you do it with that specific brand.

Should you get a store card?

In most cases, store credit cards aren’t as valuable as a top rewards credit card or well-chosen co-branded card. However, the right plan and promotions might make all the difference if you’re planning to use the card responsibly. Bankrate senior editorial director, John Puterbaugh, uses three different store cards to stretch out costs over time and earn discounts on store purchases.

“Target and Lowe’s get 5 percent off all purchases so we use them for that on pretty regular purchases at both stores,” Puterbaugh explains. “Lowe’s also commonly has great no-interest promos we’ve used for bigger purchases over the years (including a $17K kitchen remodel!). We essentially treat them as no-interest loans to stretch the cost out over 12 to 18 months or sometimes even more.”

He also pays off the balances before the end of the promotional period to avoid interest charges. While this store card success story is inspiring, it may not be the right fit in certain situations. Here are some scenarios where you should avoid using them.

When should you avoid store cards?

• When the retailer offers a co-branded credit card. If you have the option between a store card that is only accepted at a specific retailer and a co-branded card that can be used anywhere, the co-branded card is nearly always the better choice.
• When you’re planning on applying for a top rewards card. Many of today’s best credit card issuers have credit card application rules that decline applicants who have opened too many new credit cards in the recent past. The Chase 5/24 Rule, for example, suggests that Chase denies applicants who have opened more than five credit cards from any issuer in the past 24 months.
• When you aren’t sure if you can pay off your balance in full. Since store credit cards have significantly higher APRs than general-purpose credit cards, carrying a balance on a store card can be extremely expensive. Only apply for a store credit card if you are able to pay off your balance in full every month.

When are store cards a good idea?

• When you need to build your credit score quickly. Store credit cards often have more lenient approval requirements than general-purpose credit cards. So people with low credit scores or limited credit history could use a store credit card as one of the tools to build credit fast.
• When you shop at the retailer on a regular basis. Applying for a store credit card to save 15 percent on a single purchase doesn’t make sense — but if you shop at a particular retailer multiple times per month, you might be able to justify the application. Just remember that any balance you carry on a retail credit card is likely to be more expensive than you realize, so do your best to pay off your purchases as quickly as possible.
• When you can stick to a plan to pay off the balance. Whether you’re earning a consistent percentage off of regular purchases or planning to make a large purchase that benefits from a 0 percent interest period, you must have a plan to pay off that balance. Without one, you could be setting yourself up for sky-high interest charges that make the balance more expensive to repay.

Pros and cons of store credit cards

While retail credit cards aren’t necessarily the best credit cards on the market, they do have their benefits for the right person. If you’re able to pay off the balance quickly, or take advantage of no-interest promotions, then the pros might outweigh the cons for you.

Here’s a quick rundown of the pros and cons of store credit cards.

Store card best practices

Like any tool, store credit cards can be a help or a hindrance. However, a solid plan and a few fail-safes could help you make store cards worth it. Puterbaugh follows these ground rules for using his store cards while keeping costly interest charges at bay:

• Pay off the balance ahead of the end date for any no-interest promotions.
• Leave a cushion of at least three months to pay off your balance before the end of the promo period.
• Don’t let a store card drive more purchases than you’d make in cash.
• Big purchases shouldn’t be larger than your emergency fund.

One of the best practices Puterbaugh uses is to build in extra time to his repayment period.

“My rule of thumb is to take however many months you have no interest, and then spread out the cost of at least three fewer months than that so you have a cushion,” he explains. He says he’s also cautious against making purchases larger than what he has saved.

“I ideally only put a big purchase on a card if I have that balance covered in an emergency fund. That gives me peace of mind but also makes it even tougher to save up for bigger purchases.”

Puterbaugh also cautions that deferred interest is a sneaky cousin of zero-interest promotions and could land you a huge interest bill if it’s not paid off before the promo period.

“It’s very important to pay it all off in time because some of these cards will apply deferred interest on the whole purchase amount if you take even a dollar past promo date,” he explains.

Alternatives to store cards

Choosing an alternative to a store credit card really depends on what you’re hoping to get out of the card — rewards, credit building opportunities or in-store benefits.

If you want a credit card that rewards purchases at a specific retailer, look for a co-branded credit card, such as the Prime Visa for Amazon purchases. You may also want to consider a “customizable” rewards card such as the Citi Custom Cash® Card, which offers 5 percent cash back on up to $500 per billing cycle in your top spending category from among a list of options including restaurants, home improvement stores, drug stores, grocery stores and more — which could cover a retailer you frequent.

If you are thinking about applying for a store credit card because you need to build credit, you may want to consider a secured credit card instead. A secured card allows you to put down a refundable deposit in exchange for a line of credit, and gives you the opportunity to use credit responsibly to build a positive credit history.

If you’re hoping to receive in-store coupons and discounts from your retail credit card, consider signing up for one of today’s best shopping apps instead. Services like Rakuten, RetailMeNot and Capital One Shopping offer coupons, discounts and cash-back opportunities, helping you save money at your favorite retailers. You can use an aggregator like Cashback Monitor to track where to find the best rewards deals.

The bottom line

Store credit cards reward loyalty, so it can be tempting to sign up for a card from your favorite retailer to cash in on rewards for spending you’re likely to do anyway. If you’re regimented enough to stick to a few best practices with store cards, then the value they offer might outweigh the risks and limitations. Before you apply for a store credit card, take some time to read the fine print and understand exactly what you’re getting into — and make sure you have at least one credit card you can use no matter where you shop.