What to Know Before Getting a Store Credit Card

The 10% discount customer service representatives offer for opening a store credit card isn’t always worth it. Before you agree to signup for a store credit card, make sure you’re ready for another credit card. The credit card should offer enough ongoing benefits to justify having it.

You may not be able to use it outside the store.

One type of store credit card that can only be used inside that specific store, or maybe sister stores. These are known as closed-loop credit cards.

Store credit cards that are partnered with a major credit card processing network can be used anywhere that credit card is accepted. These are co-branded credit cards.

The trouble with closed-loop credit cards is that you don’t get much use from it outside of that particular store. And you could be tempted to overuse the credit card, racking up high balances, simply because it’s available.

You may not be able to choose the card you want.

Some retailers offer two versions of their credit card – a closed-loop card that you can only use in the store and a co-branded credit card that you can use anywhere.

The problem is that you may not get to choose which credit card you ultimately end up with. The card issuer will often try to qualify you for the co-branded credit card first and will automatically qualify you for the closed-loop version if you’re not approved for the co-branded version.

The credit limit may be low to start.

Don’t be surprised if your initial credit limit is low. Even if you have excellent credit, you might still be stuck with a $300 to $500 credit limit depending on your income, other credit card balances, and the card issuer’s internal rules.

A low credit limit means you don’t have much spending power. Even one shopping trip could push your balance to a high utilization amount and affect your credit score. Credit utilization measures the amount of credit you’re using and is 30% of your credit score.

The rewards you earn may not be very flexible.

Look for the value in the credit card beyond the initial 10% discount. Will you earn rewards on the purchases you make? Which purchases earn the most rewards?

You can typically expect a store credit card to pay higher rewards on charges from that particular store. With co-branded credit cards, you should have the ability to earn rewards on all your purchases. Some even offer an additional bonus category.

Earning rewards is great, but make sure you also have flexible redemption options. Some store credit cards only allow you to redeem your rewards towards future purchases in that store. If you’re looking for more flexible redemption options, for example the ability to redeem your rewards as cash back, you may have to look elsewhere.

You may have a high interest rate.

Store credit cards typically carry a higher interest rate when compared to other credit cards. This goes for both closed-loop and co-branded store credit cards. The higher interest rate means that carrying a balance is more expensive because the monthly finance charges will be higher.

Paying more money in finance charges than you’re receiving in rewards each month doesn’t make for a very rewarding credit card relationship. If you decide to take on a store credit card, make sure you pay your balance in full each month.

Of course, when the store representative asks if you want to sign up for the credit card, they’re more focus on selling you the benefits – the 10% discount – than telling you the details of the account. Before you apply, make sure you read through the terms and conditions so you’re fully aware of the credit card pricing.

It’s ok to decline the opportunity to apply for the store credit card, especially if you haven’t had time to shop around. You may be able to get a better deal with a general rewards credit card.


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