Should you Consider a Retail Credit Card?

A person being handed a retail credit card at a store with shopping bags beside them.

Generally, consumers should use as little credit limit as possible. That means having only one or a few credit cards. Knowing that might cause you to wonder, should a retail store credit card be part of the mix?

Retail cards might include a store credit card specific to a certain store or family of stores, or online purchases to an online retailer, like Amazon. A retailer might issue their own store credit cards that are valid only at their stores. It may also be major credit card issuers, with a Visa or MasterCard logo, which is valid anywhere. Whether you should sign up for a retail store credit card might depend on your specific circumstances, but there are some factors for everyone to consider when selecting a new credit card.

Related Article: What to Consider Before Getting Your First Credit Card

Why You Might Consider Getting Retail Store Credit Cards

Retail Store Credit Cards Are Relatively Easy to Get

When you sign up for store credit cards at checkout counters, or online through a retailer’s app or website, you’re typically more likely to be approved for credit than if you apply for a traditional credit card through a bank or major credit card issuers.

If you’re young and new to credit cards, or working to re-establish your credit after a disruption like bankruptcy, you might find retail store credit cards an attractive option because they are quicker to approve credit card applications.

A Retail Store Credit Card Can Be Used to Build Credit Scores

Like we just mentioned, people with low or poor credit scores might appreciate that a store card is easier to get. This makes it a good tool for building credit scores.

One important credit card factor is that it must be used to generate a credit history and credit scores for the user. If you have a card for a particular retailer, you’re more likely to shop often and use the store card regularly. That regular activity generates good data to help you build a credit score—if you make your monthly payments on time every month. If you miss monthly payments or exceed your credit limit, you could end up doing more harm than good to your credit history.

Traditionally, credit experts used to advise new credit users to get a retail loan, like when buying furniture or a major appliance. This kind of loan would give young consumers the chance to pay off a single purchase over multiple monthly payments, and prove they can handle carrying debt from month to month. The problem is, many businesses no longer offer that type of loan —most furniture and appliance stores will offer you their store credit card instead. The same principle applies—if you get the store card and pay off your appliance/furniture purchase responsibly, you will do a lot to establish your creditworthiness. That is, assuming you don’t use the credit card for a spending spree or miss any payments.

Learn More: Quick Ways to Improve Your Credit Score

Store Cards Come with Many Rewards and Incentives

One of the reasons retailers offer their own store cards is to generate loyalty. If you have a credit account with a particular store, you’re more likely to shop there than the alternative.

To sweeten the deal, creditors tend to offer big rewards, discounts for promotional period, or exclusive sales for shoppers who shop often with their card., We’ve all heard offers at the register, where signing up for a card will get you exclusive discounts or earn rewards, but some cardholder benefits offer a permanent discount for shoppers. Users of the Target Red Card, for example, get an extra 5% off on their Target purchases at Target stores using the Target card. Other retailers might offer free shipping for online orders if made with that retailer’s credit card.

Choose the Correct Retailer’s Card to Limit Damage

One potential advantage is that you can control how much damage you might be able to do to your own credit report by choosing the right retail card.

If you get a store credit card that’s only good at one retailer’s locations, then you won’t have lots of opportunities to use the store credit card all over town and max out your credit limit. For new credit users, this advantage shouldn’t be underestimated. In fact, we often recommend gas station cards for new credit users like college students. The thinking goes that if you only use the card for one kind of purchase, but use it regularly and pay off your balance every month, you generate good activity to build a credit score, without paying a lot of interest. Gas station cards fit the bill perfectly, assuming you only use them at the pump when filling up and don’t shop in gas stations or convenience stores with them.

Large Introductory Benefits

We talked about introductory benefits, like exclusive discounts on your first purchase. A common perk for new retail cards is a 0% introductory interest rate. If you buy something big, like the furniture or appliances we discussed earlier, you can really benefit from six months or a year of no interest. Plan to pay off the debt over that timeline and you’ll avoid interest charges while establishing a solid payment history.

Why You Shouldn’t Get a Retail Store Credit Card

High Interest Rates

Retail cards tend to be very expensive. They carry among the highest interest rates in the credit card industry. Rates are always fluctuating, but right now the typical store card should be expected to come with a rate of around 25%. That’s very high by typical credit card standards, and compared to other kinds of loans.

Lower Credit Limits

A major factor in establishing a credit score is your credit utilization rate, the amount of credit limit you use as compared to your credit card limits. The smaller the percentage of your available credit you’re using during a billing cycle, the better it is for your credit report. A concern with retail cards is that they may have a smaller overall credit limit, which forces you to use a greater percentage of the available credit when making a major purchase.

For example, you might get a $1,000 available credit limit from a retail store. If you buy a $700 refrigerator, you’re using 70% of your available credit. This is a high credit utilization rate and will lower your credit score until you’ve paid the balance down. If you apply for a traditional credit card and get a $7,500 available credit limit determined, then the same refrigerator uses less than 10% of your available credit. 10% or less is the sweet spot for credit utilization that everyone should strive for, and is very good for your credit scores.

If building excellent credit is your goal, the lower credit limits offered by retail cards shouldn't be considered when making major purchases.

Limited Outlets

Whether this is a pro or con for store cards depends on you. We said earlier that it can be good to limit where you can use your credit—this is especially true if there’s any danger of you overspending or misusing credit. But if you are a savvy credit user, you may find a particular retailer’s card limiting if you can’t use it everywhere. For a lot of store cards, it’s possible to use them everywhere; you simply give up the perks that come with using them in store.

Rewards are Less Frequent

The rewards and discounts that come with retail cards can be significant, but they only come if you use them with that particular retailer. Many traditional bank credit card issuers come with solid rewards that you get no matter where you use the card. Some people get a card with better rewards they value (like travel points, sign-up bonus, bonus categories) and do all of their shopping on that card to build up better rewards. As long as they can afford to pay that card off every month, they can earn a lot of rewards, and certainly more than if they’re only rewarded for shopping at a particular retailer.

They Can be a Symptom of a Debt Problem

One thing we’ve learned from more than 45 years of providing credit counseling is that having too many cards is a sign of a debt problem. People who sign up for store credit cards at the checkout counter tend to have too many credit cards.

If you’re considering a store card, but you already have one or more credit cards, you should stop and ask yourself whether you’re taking on more debt than you can handle, and if the rewards are really worth the financial risk.

Related Article: 10 Warning Signs You Have Debt Problems

The Best Store Credit Cards Make You Spend More

A retail store card won’t help you if you have a shopping problem, or a weakness for impulse buying. These cards make it easier to spend more at your favorite retailer, and if you’re trying to learn to budget, this might not be the best kind of credit card to carry with you.

People with retail cards can often be lured into spending more to take advantage of particular offers, and the retailer tracks everything they buy. The more information your favorite retailers have about your shopping habits, the more effectively they can market to you. This might be a good thing—why not generate the kinds of offers you’ll benefit from?—but if you’ve got any kind of spending problems, you might not like the power a store card will give retailers to entice you to spend.

Steep Penalty Rates

Retail cards typically carry steep penalty rates from a financial institution. If you are late or miss a payment, an already high interest rate can skyrocket even higher. You might be paying 24% normally, and see that rate shoot up to 29.99% when penalties are applied. These rates are much higher than typical bank credit cards, which average just under 17% right now for new accounts.

Another thing to be careful of is that penalty rates can be retroactive. If you are paying a 0% introductory rate for six months, but don’t get the balance paid off within that time, then the full interest rate can kick in for the entire balance, and you’ll start paying interest as if you never had the introductory benefit. 

With all of these negatives, it might seem like retail cards are always a bad idea. That’s not necessarily true—your individual circumstances might make a retail card a good idea, even with the higher rates those cards bring.

Making an Informed Decision on Retail Credit Cards

Conclusion: Evaluating Retail Credit Cards for Your Financial Needs

Retail credit cards can be a strategic choice for certain consumers, particularly those new to credit or rebuilding their credit history. They're often easier to get than traditional credit cards and can help build credit scores if used responsibly. These cards typically offer attractive rewards and incentives, fostering loyalty to specific retailers. However, their high interest rates and lower credit limits can negatively impact your credit utilization rate and overall credit score. Additionally, the limitations on where these cards can be used and the less frequent rewards compared to traditional cards might make them less appealing for experienced credit users.

When considering a retail credit card, it's essential to assess how it aligns with your financial goals and spending habits. For those prone to impulse buying or already managing debt, a retail card might worsen these issues. Steep penalty rates for missed payments can also become costly. If you already have multiple cards, think about your overall debt strategy before adding another. Reviewing your credit report can provide insights to help in this decision-making process. Ultimately, the choice of a retail credit card should support your long-term financial health and goals.

If you’re looking into a retail card because of your credit, consider getting a credit report review to make sure you’re taking the best steps you can to improve your credit over time.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined in 2003 and has over two decades of experience in the industry.

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