Should you steer clear of store credit cards?

What are store credit cards?

Whether you’re a big-time shopaholic or like to go to the mall occasionally, you’ve likely been asked if you’d like to open a card for a given store. Store cards are credit cards that can only be used at a specific retailer, which means you won’t be able to use it to make purchases outside of its designated store. Depending on the card, store credit cards can provide users with exclusive discounts and rewards when they shop.

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Are there any benefits to opening a store credit card?

The biggest perk of having a store credit card is getting access to special promotions. If you open a card with a store that you frequently shop at, the discounts will add up over time. Store credit cards are also less selective about credit scores, whereas most major credit cards require good credit scores as a prerequisite for applying. Opening a store credit card and making timely payments on it can help you boost your credit score.

What are the downsides of opening a store credit card?

Every store credit card is different, and it’s important to do your research before getting a new card. Here are some potential downsides that can come from opening a store card:

High interest rates

High interest rates can defeat the purpose of using a store credit card for its deals. According to a recent survey, the average APR for a store card in 2022 was 26.72%.¹ To put into perspective, the average APR for a regular credit card is around 20%.1 Some store credit cards also offer deferred interest, which means you can put off interest charges for a set amount of time. While deferred interest sounds like a good deal, you may get slammed with all the interest that you’ve accumulated since opening the card if you don’t pay off the balance before the promotional period ends.

Limited use

Store credit cards are also not as practical as regular credit cards, as they can only be used at specific stores. If you get a card for a store you don’t shop at often, that card will only take up space in your wallet. Most store cards also have low credit limits, making it easier to max out the card and rack up credit card debt.

Hard to keep track of payments

Balancing your store credit cards and regular credit cards can be a hassle. With multiple store cards, you’ll have to remember to make payments on each card every month. Cards that aren’t used much can get overlooked, which can cause interest rates to accumulate.

Spending more than intended

After getting a store credit card that offers discounts and perks, you may end up spending more to take advantage of the deals. Store cards also offer deals where you get a discount after spending a certain amount, which can lead to unnecessary purchases.

Are there store credit cards that can be used in other places?

Store credit cards may be worth it in some cases, but it’s best to avoid them for the most part. If you’re looking for ways to build credit and get rewarded while shopping, look into co-branded open loop cards. An open loop card is a credit card that can be used in any place where the card type is accepted. Co-branded cards that are open loop can also be used anywhere, and you can receive deals and discounts when using the card to make purchases from the partnered brand.

So the next time a sales associate asks if you want to sign up for a store card, make sure to do your research before signing up. Find more budgeting tips to help you navigate your finances the smart way.

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