The pros and cons of store credit cards
It's important to understand the pros and cons of store credit cards before making a decision. Learn more with this video from Better Money Habits.
But store credit cards are a little different than regular credit cards, so it’s a good idea to understand how they work before you sign up.
Many large chain stores offer their customers store credit cards that come with discounts or other rewards.
Some store cards are offered in partnership with a bank or major credit card company in which case, you can use them wherever you would use a regular credit card.
But often, you can only use a store card at that particular store.
Store credit cards often come with a number of perks like in-store discounts, coupons, special shopping days, sales, and other benefits, like being able to return an item without a receipt.
Some may offer cash back or rewards points that can be redeemed at the store.
And some store credit cards might be easier to qualify for than traditional credit cards offered by a bank. A credit check is still required, but customers with lower credit scores who might be turned away for a traditional credit card may have an easier time qualifying for a store credit card. So someone who is looking to establish a credit history or wants to rebuild their credit, may be able to use a store credit card to do so.
On the other hand, there are some potential drawbacks to store credit cards.
Aside from the possibility of only being able to use it at a specific store, they often carry higher interest rates than regular credit cards.
A regular credit card might have an interest rate around 13%, while a store card’s rate might be 20%.
So if you carry a balance from month to month, that higher interest rate could make a big difference in what you owe…
And the additional amount you owe in interest might end up costing more than what you saved from any discounts that came with the card.
And with some store cards, if you carry a balance from month to month, that interest rate could increase.
There are also some store cards that might offer a 0% interest rate on a large initial purchase.
For the first six months, or a year, you might not be charged any interest on that item. But, with certain cards, if you haven’t paid off your entire balance within the given timeframe, you could be charged for all the interest that would have accrued on the purchase from day one.
And also keep in mind that applying for multiple credit cards at once can result in multiple credit inquiries which might negatively affect your credit score; and opening additional lines of credit could impact your ability to sign up for other types of loans, or other credit cards.
A lot of times, people make decisions at the register to sign up for store credit cards to take advantage of good discounts. But if you have second thoughts, remember that you can always cancel your card—as long as you’ve paid the balance on it.
So the next time you’re weighing the benefits of a store credit card, remember to find out a few things first:
Ask if there’s an annual fee.
Find out if you can use the card at other stores.
Ask what the interest rate is—and if the rate will go up if you carry a balance from month to month.
If the card has a 0% interest rate for a certain amount of time, ask what the penalties are if you don’t pay off the card in that timeframe.
And read the fine print--make sure you understand all the terms that come with the card.
Knowing the details can help you decide whether a particular store’s credit card is right for you.