Pros and Cons of Store Credit Cards

Posted on December 4, 2020 in Credit Cards

Let’s set the stage: you’re at the mall for a Christmas shopping trip or just a casual afternoon of trying out the latest fashion from your favorite stores, and it seems like every time you check out, you’re offered a store credit card for 20% off your purchase and 10% off every time you buy something at that store. 

While this can be somewhat frustrating in the moment in having to just say no every ten minutes, there are actually some benefits to store credit cards that a lot of people don’t actually realize when they’re asked about them.

In this article, let’s explore the mindset behind store credit cards, why they’re offered, and look into the pros and cons of applying for store credit cards yourself. 

What is a Store Credit Card

The first step in deciding whether or not to embark on any financial journey is to learn exactly what it is you’re getting yourself into. Finances can be an extremely tricky thing to navigate, and protecting yourself and your family financially should be a priority. 

The concept of credit cards in the modern, Western world is extremely familiar to most people, but it’s remarkable to see how many people actually struggle with credit card debt even just in the United States. According to the Federal Reserve, the current amount of outstanding monthly credit debt in the United States over the last 50 years has increased annually, with a current estimate being that almost $4.1 trillion is owed in consumer credit as of September of 2020.

That is an absolutely staggering figure, as it relates directly to only consumer credit, not corporate credit or institutional finances in any way. This is in part due to low education on credit, high interest rates, and poor financial decision-making on the part of the individual consumer. 

Credit card debt is extremely dangerous and difficult to get out of, so when discussing the pros and cons of any credit card, store card or not, it is important to note that it is absolutely never a good idea to purchase anything that you cannot afford.

Store credit cards are almost exactly the same as any other kind of traditional credit card that you could get from your bank, credit union, or large financial institution. They typically provide discounts and “frequent shopper points” when used exclusively at their stores and can also provide special interest rates (even 0% interest for a short time) on purchases made during a specific period. 

These kinds of cards are most commonly offered around the holidays, with companies trying to capitalize on the amount of purchases that people are making during a season that revolves around retail shopping and gift giving. 

There are essentially two types of store credit cards: cards that can be used at any location that credit cards are accepted, and cards that can be used exclusively at the store that made the credit offer and gave you the card. 

However, regardless of which type you apply for, it will show up on your credit report as a line of credit that you must pay off on time to avoid late fees, interest rates, and negative impact to your credit score.

What Are Some Pros to Store Credit Cards?

One of the most obvious positives to getting a store credit card is that store credit cards often give instant rewards or instant savings when you first get one. Some stores even offer cards that give instant savings even without being approved; all you have to do is apply! 

This is an excellent way to save money on purchases, especially if you’re spending a lot of money all at once at a store you regularly shop at. If you would usually spend $500 on a Christmas shopping trip for your whole family, an instant 20% savings just for completing a credit card application is a great way to save $100 right off the bat.

Another benefit to getting a retail store credit card is that these cards tend to be easier to get, even if you have a low credit score or a poor credit history. The best store credit cards for bad credit often times have a lower credit limit and they are also often designed so that you can use them at a very limited number of places (most often, just at the specific store), so overall, it is easier to use these cards to rebuild your credit score as they are just easier to pay off. 

It’s harder to get yourself into a situation where you owe too much, and so it’s much easier to stay on top of your credit owed with a retail store card. 

However, there are some retail store cards that are just full-fledged credit cards that can be used at any place that accepts credit, and these are usually harder to get and have higher credit limits. 

For example, Amazon offers two separate credit cards: a store card that can only be used at their website, and a full-fledged credit card in collaboration with Chase Bank that can be used anywhere, but still offers special financing or 5% cash back at Amazon. 

Make sure you weigh all the options available before deciding on a card.

What Are Some Drawbacks to Store Credit Cards?

While there are numerous positives to store credit cards, store credit cards also have lots of downsides that are related to the pros and should definitely play a role in whether or not you decide to select one. 

The first downside to selecting a store credit card is that while they are easier to apply for and get approved for, they also often carry higher APR/interest rates than normal credit cards. This can be a problem because as the card offers benefits and discounts, it can be easier to justify spending larger quantities of money at once on the card, making it harder to pay off in the long run — and the higher interest rate definitely doesn’t help.

Also, 0% interest cards or deferred-interest cards can also have hidden clauses in their fine print which, rather than completely deleting all the interest on your purchase, can just delay the rate at which your interest accrues, which can completely mess you up in the long run when you get towards the end of a payment cycle and notice a large fee all at once. 

Missing a payment in the course of a high-interest credit payment cycle or even getting to the end of a cycle and having unexpected fees added onto your payment can be devastating to your budgeting, so make sure that you have all the facts and are confident in your decision before jumping into anything right on the spot. 

That’s probably the biggest downside to getting a store credit card: you are pushed to make a quick decision right at the register for something that will affect your credit score down the line just so you can save a few dollars. While this may be a great idea for some people, it is hard to make sure you’re making a wise decision. 

Final Tips for Store Credit Cards

  1. Keep an eye on your spending. If you apply for a store credit card, the balance will not be stored at your primary bank, so make sure you have a good way to track your spending. 
  2. Pay on time. Higher interest rates mean higher penalties and greater impact on your credit score if you miss a payment!
  3. Limit the number of cards you apply for. Even though they may seem like a great idea, too many credit card applications all at once can make you look like a credit risk to financial institutions and banks.
  4. Do not get too close to your credit limit. This goes back to the first tip, but spending too much all at once can lower your credit score because the higher the percentage of your credit that you use, the lower your score will be. 
  5. Try not to carry a balance if you don’t have to. You might be tempted to pull out the plastic for all store purchases with the allure of discounts and reward points, and this is totally fine as long as you try to pay off the balance each cycle. 

Store credit cards can be rewarding with discounts and rewards, but don’t let high interest rates and annual fees cancel out those benefits.

All in all, you need to use your best judgment to decide if a store credit card is right for you. Some rewards and discounts are irresistible, and if you have good credit and decent spending behavior, go for it! But you should also be wary of sky high interest rates and annual fees, which are often in fine print as you’re signing up to get that one-time 20% discount. Your best bet? Talk to a personal finance company to get a gauge on whether or not your own credit report has space for a new account.

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