Your Favorite Store Offers a Credit Card. Is It Worth Applying?

If you’ve shopped at a retail chain, a cashier has likely asked you to apply for a store credit card at checkout. Retail credit cards can carry great-sounding store-specific perks like extra points or generous discounts. Because of these benefits (and some aggressive sales tactics), nearly 40% of Americans use retail or store-specific cards.¹

But is it worth applying just for a discount? Before you do, consider the conditions surrounding these cards.

How Do They Work? 

While the specifics vary from store to store, a retail credit card generally functions under the same premise as a standard credit card. The card’s terms will differ depending on the store. Some stores offer “closed-loop” credit cards, which are only usable at that store; others offer “co-branded” cards through services like Visa or Mastercard that you can use at almost any merchant that accepts credit cards.

Pros of Store Credit Cards

Store credit cards have some exclusive advantages.

Pro #1: Easy to Qualify For

Easier qualification makes retail credit cards ideal for those who may not qualify for a standard bank-issued credit card.

Pro #2: Helps Build Credit

Using a retail card responsibly can help you improve your credit score over time.

Pro #3: Perks and Discounts

If you apply for a retail card from a brand you shop frequently, you can take advantage of brand loyalty rewards; the discounts and perks can save you a significant amount of money over time.

Cons of Store Credit Cards 

Many people find the discounts or loyalty perks associated with these cards extraordinarily appealing and, as a result, pay little attention to the other conditions attached to the card.

Con #1: High-Interest Rates and Deferred Interest Charges

High-interest rates can put you at risk of losing significant amounts of money if you can’t stay on top of your payments. Plus, deferred interest charges can increase your interest rate if you don’t pay off your card by the end of the promotion period.²

Con #2: Low Credit Limits

Credit advisors encourage cardholders to spend less than 30% of their credit limit each cycle.³ With a lower credit limit than regular cards, many find it easy to exceed the recommended spending guidelines with a store card; this may force you to choose between hurting your credit score or shopping without your card and sacrificing your discounts or rewards. Conversely, a higher credit limit brings with it the temptation to spend more.

Con #3: Higher Risk of Overspending 

Retailers are strategic in marketing their sales, taking advantage of consumer impulses. It’s easy for shoppers to focus on a discount or sale rather than an item’s actual price; this is why stores will use sales, coupons, and card rewards in hopes that you’ll spend more. If you have a history of overspending, a store credit card may result in falling back into habits of overspending.

Con #4: Harder to Keep Track of Your Debt

For those who don’t always pay off their cards, spreading their debt over multiple credit cards can trick you into thinking that you owe less than you actually do. Owing  $1,000 on each of five cards can feel like a lot less debt than having one card with a $5,000 balance. A credit card for the store you frequent the most can make sense, but you should not get one for every store you go to.

Effective Use is the Key 

If you decide to apply for a store credit card, be conscious of its potential downsides. Pay the card off on time and in full every month (no exceptions) to avoid high-interest rates and monitor how much of your credit limit you spend to prevent harm to your credit score.

Store credit cards boast tempting deals to draw in new cardholders, but it’s essential to consider the whole picture before getting one. While they offer perks and can serve as an easy way to build credit, effective use requires responsibility and close monitoring. Do your research to determine if a retail card will genuinely save you as much money as it promotes.