Should I Apply for a Store Credit Card?

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A store credit card, also commonly referred to as a co-branded credit card, is a credit card that is sponsored by both a retailer and a credit issuer. Aside from providing shoppers with an additional payment method, store cards are commonly intended to enhance the user’s shopping experience while promoting customer loyalty. But should you get one?

The Store Credit Card Application Process

Store cards can be easily applied for when visiting popular retail stores, many offer online applications as well. Considering the fact that many retailers offer their own credit card, store credit cards have undoubtedly become popular and many people have at least one. Large retailers have several different methods of making their credit card’s presence known to consumers. When shopping at retail chains, more and more consumers are being offered a store credit card application during checkout or possibly even in the aisles while still shopping.

When a cashier tries to get a shopper to apply for a store credit card, the cashier will commonly mention that you can save money by applying for their card. If a shopper decides to apply for the store card, their application is either approved or declined in a matter of seconds. Since store cards will commonly include low spending limits, many people are easily approved for them. Once the application has been approved, the credit line is ready to be used in many cases before you even get you card.

Store credit cards
Retailers often offer a store credit card to their customers at checkout

Due to the convenience of the store credit card application process, many consumers find themselves with several store credit cards in their wallet. Although store credit cards are easy to apply for, you should never blindly apply for any one of them without knowing everything about it first.

Store Credit Cards: The Good, The Bad and The Ugly

One thing that every rational consumer should know about store credit cards is that even though they can be rewarding, you need to take caution when using them. Store credit cards are known for including features that can be limiting to the cardholder. Before applying for a store card it’s important to know the good, the bad and the ugly features that are commonly associated with these types of cards.

The Good

One of the most popular aspects of store credit cards in general is that most of them have a rewards system in place. When a card includes a rewards system, cardholders will be able to collect reward points every time their card is used to make a purchase. In most situations, the retailer who issued the card will award the cardholder with a gift certificate or some other type of reward once enough points have been collected.

Aside from a rewards program, many store cards will include benefits that can enhance the cardholders shopping experience. Examples of benefits that are commonly included with store credit cards include access to exclusive savings events, shopping discounts, special financing offers and more.

The Bad

Some store credit card can be very limiting from where you can shop and how much you spend. Most store cards will not be affiliated with any major payment network such as Visa or MasterCard. When a card is not attached to a payment network, it can only be used to make purchases from the retailer that issued the credit card. By the same token any rewards earned can usually only be redeemed at that retailer as well, which can sometimes create a shopping hamster wheel which just keeps circling because every time you shop again you will earn more rewards which you will have to go back to that store to redeem, ultimately spending more.

Aside from the fact that store cards will commonly limit where you can use them, store cards are also known for strict spending limits. According to data produced by Experian, the average credit limit on a traditional credit card is about $8,000 as of December 2016. Whereas store cards will generally not allow anyone to have a limit this high.

In most cases, a limit of about $500 will be given when you are first approved for a store card. An example of this is the low level of spending capabilities that are generally included with store credit cards. Low limits on cards can negatively affect your credit utilization. Your credit utilization should never go above 30% so if you are carrying a $450 balance on a card with a $500 limit that would put your utilization rate at 90%. This can negatively affect your credit score.

Store Cards Credit Limit
Store credit cards often have low spending limits and can only be used at the store it is affiliated with

Store cards are known for having high interest rates, and this fact alone has left store credit cards with a bit of a bad reputation. The national average APR is around 15.59%. When comparing store cards, you will see that it’s almost impossible to find cards with APRs below 19.99%. Many of the store cards that are currently available include APRs as high as 29.99%. Having an APR this high can take away from any benefits you could receive if you were to carry a balance.

The Ugly

One of the most egregious aspects of a store credit card is getting stuck in a deferred interest financing plan commonly referred to as “special financing” or “interest-free financing.” Many store credit cards, especially those offered by retailers with expensive merchandise such as electronics or furniture, will come with a “no-interest” financing offer. Although the offer will say “no interest” there is a catch to this.

By missing a payment or not paying the entire amount within the agreed upon timeframe you can end up being charged interest back to the original date of purchase. This lump sum of interest can easily negate any discount you thought you were getting or any rewards you may have received. A much better financing option is a credit card with a 0% introductory rate this way if you need additional time to pay you won’t get penalized with a lump sum interest payment.

Conclusion

If you are considering a store credit card, the right card may be useful to you if used correctly. When it comes to store cards you should never carry a balance and avoid using them for financing. Also, if the store has a loyalty program separate from their credit card you may want to just join their loyalty program and use a traditional bank credit card to make purchases. It’s sort of like double dipping you get rewarded from the store with their loyalty program and earn additional rewards with your reward earning bank credit card. Loyalty programs are easy to join and available to all. They are free and do not require a credit check.

Be sure to make informed decisions when applying for credit cards. Although you may one day find a store card that catches your interest, remember to keep in mind that the perils may outweigh the rewards. Every time you apply for a credit card, your credit score will take a small hit. So, before you ever decide to apply for a store credit card, be sure to learn everything there is to know about that card first!