“Would you like to save 10% on today’s purchase by opening our store credit card?” I’m sure you have heard this question hundreds of times when you are at the cash register paying for something at a store or when you’re online checking out. Sometimes the offer can sound tempting, especially when it’s for a store branded credit card from a retailer where you shop often. And it’s easier to get approved for store-branded credit cards than general-purpose credit cards, even if your credit score is not very high. But I’d like to give you some additional info which might make you reconsider.
First, make sure you know the difference between “closed-loop” store-branded cards and “open-loop” cards. Many store cards are closed loop, meaning you can use them only at the issuing store, or perhaps at a group of stores owned by one company. But if you want a card, you can use anywhere, look for one with a Visa, American Express or Mastercard logo on the front. These are known as open-loop cards or co-branded cards. They can be used anywhere the card network — such as Visa or Mastercard — is accepted. The card will usually also have a particular retailer’s logo on it. Some retailers offer both store credit cards and co-branded credit cards.
Some examples of retail store cards are the MyLowes card or Target circle credit card, both of which offer a flat 5% discount on everything. Its good getting the savings upfront and not having to put points towards a future purchase. You also don’t have to check categories since the discount applies to anything you buy. These are both closed-loop cards.
The more I found out about retail credit cards, the more it seems like they are not always worth getting, and many financial experts advise strongly against getting store credit cards.
The number one reason to avoid getting a retail store card is because of their high interest rates. They have significantly higher APRs (annual percentage rates) than general-purpose credit cards, so if you aren’t able to pay off the balance in full, it can get very expensive. According to Bankrate’s 2024 Retail Card Study, retail credit cards charge an average of 30.45 percent APR. So, the golden rule is to only apply for a store credit card if you know you will be able to pay off your balance in full every month. Now, of course, this is not easy. And if you really want something from a certain retail store, a big-ticket item such as a TV or furniture, it would make sense that you would want the discount that comes from signing up with a retail credit card. This especially applies if you aren’t able to pay cash or use a debit card at that time. A possible solution could be getting the card and trying to pay off the balance in full as soon as possible. Then you can keep the card away and not use it again. Or use it at other times when you know you can quickly pay off the balance.
Another negative of retail store credit cards is that it can take much longer to earn rewards than if you were using a general-purpose credit card. Your opportunities to earn rewards are limited, since you can only buy products at that particular retail store, as compared to if you could earn on a daily basis with every purchase, from gas to groceries.
Also, the slight discount you get when you buy things at the store with a store-branded credit card doesn’t compare to the big sign-up bonuses general-purpose credit cards offer, which can be used for products or free travel services.
Sometimes, retailers can make misleading offers: they might say they are offering “zero percent interest”, but this may actually be deferred interest promotions. They are just postponing interest payments for a while, during the promotional period. So, if you are still carrying a balance when your promotional period expires, you could incur retroactive interest based on your average daily balance back to your original purchase.
I really hope my newsletter this month has made you view retail store credit cards a little differently!
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