What are store credit cards and when are they a good deal?
It’s an annual tradition. You’re shopping for the holidays and by the time you checkout you’re asked if you’d like to save money on today’s purchases by applying for a store credit card. In 2020, this offer is more likely to come as a pop-up on your screen than as a question from a cashier, but the question is no less important.
What is an in-store credit card?
A store credit card is a revolving charge account that is branded or co-branded with a retailer. Some store credit cards can only be used for in-store purchases, including online purchases from the retailer. These are often referred to as in-store payment cards and are very commonly offered by small and medium-sized retailers.
Alternatively, many large retailers offer in-store credit cards that are part of a larger payment network such as Visa, Mastercard, or American Express. And while these cards typically offer store-specific rewards and benefits, they can be used for purchases at any merchant that is part of the payment network listed on the card.
What are the benefits of an in-store credit card?
First, an in-store credit card will usually offer new applicants a modest discount on their purchases that day. If you are making a very expensive purchase, your savings could be significant. But if you make small purchases, your discount may not be large.
Second, store credit cards usually don’t require an excellent or good credit rating, or even a great deal of credit history, if applicable. This makes store credit cards attractive to those new to credit or those who have had serious credit problems in the past. Opening a store credit card, using it for a few purchases, and paying off your balance in full is a very traditional way to build or restore good credit.
Finally, a store credit card will often offer store specific rewards and benefits. For example, the Target RedCard gives you 5% cash back on Target.com, including pickup and delivery, and you have an additional 30 days to return purchases made with your Target RedCard. Most retailers also send store cardholders with exclusive promotions and coupons.
What are the disadvantages of a store credit card?
Store credit cards have their uses, but they can also have significant drawbacks. First of all, a store card will often have very high interest rates. It’s not uncommon for an in-store charge card to have a standard interest rate of nearly 30% APR, about double the national average.
Store credit cards may also offer lower rewards. While you will usually receive the most valuable rewards when you use your card in the store that offers it, it will rarely offer full rewards for out-of-store purchases. This is because most store cards only offer 1% cash back for non-store purchases, while cards like the Chase Freedom Unlimited® offers 1.5% cash back and the Citi® Double Cash offers up to 2% cash back on all purchases, in the form of 1% cash back at the time of purchase and another 1% cash back when you pay for your purchases.
But also, having a store credit card in your wallet can act as an advertisement for the store and entice you to make purchases there that might not represent the best deals. People often buy from the store they have a card in, rather than looking for lower prices or looking for used merchandise.
Buyers can also spend less time reviewing a store card’s terms and conditions when submitting a request just before finalizing a purchase. Seeing a pop-up on the screen or standing in front of a cash register is often not the best time to make important financial decisions, like applying for a credit card.
At the end of the line
Store credit cards can be appealing, but it only makes sense to get one if you’re a big fan of the store and are sure you’ll be spending a lot of money on it. By understanding all the pros and cons of store cards, you can make the right decision based on your needs.
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