Pros and Cons of Store Credit Cards: Are They Worth It?

Store credit cards are a big deal during the holiday shopping season.

Retailers want you to spend money at their store and store cards are one way to gain your loyalty.

To entice you, you’ll often see sales associates and a store’s app pitch their card to you, whether it’s a pure store card you can only use at the retailer or a full-fledged credit card you can use anywhere that gives you elevated rewards at the retailer.

To further their appeal, retailers often promise you instant approval while you’re at the register. This sales pitch can be hard to pass up considering the only thing separating you from a 20% discount on your purchase, for example, is filling out a quick form.

However, what most of us fail to recognize in these moments is the full picture of owning a store credit card. Rarely do we stop and think, “Is it worth it?”

In this article, we’re going to walk you through our analysis of store credit card pros and cons, and we’ll offer you our advice on choosing between a store credit card and a regular credit card.

The Pros of Owning a Store Credit Card

Based on our research of more than a dozen store credit cards, we believe their greatest strengths can be organized in two categories: discounts and rewards rates.

Shopping Discounts

As we mentioned in the introduction, store credit cards really try to leverage the instant savings and intermittent discounts you get for owning their store card.

Here’s a quick overview of what some of the more popular store cards offered at the time of publishing:

Gap:

  • 20% off/free shipping on first purchase
  • 10% off Gap and Gap Outlet purchases
  • Random bonus point days
  • Choose-your-own-sale days

Macy’s:

  • 20% off first purchase of $500 or less
  • 25%-off coupons throughout the year
  • Spend more than $1,200 in a year for 5% rewards

Kohl’s:

  • 35% off your first purchase
  • 15%-off coupon when you get your card in the mail
  • 12 discounts sent to you throughout the year

These various coupons and discounts are meant to keep you shopping in the retailer’s online or brick-and-mortar stores. This is why they tend to offer high rewards rates or intermittent discounts throughout the year.

Our research shows us that many of these first-purchase and intermittent discounts have certain restrictions on them that you need to read before you shop.

For example, certain Kohl’s discounts don’t allow you to use it on jewelry, certain electronics and certain brand names like, for example, Under Armour.

Excellent Rewards Rates for Store Purchases

The second benefit these cards give, in our opinion, is that certain ones can get you excellent rewards rates on important spending categories like groceries and clothes.

For example, Target gives you a 5% discount at the register if you use your Target REDcard. Considering that some Targets offer an entire grocery store, that 5% discount ends up being the best grocery rewards rate among store and non-store credit cards.

The same goes for purchases made with the Walmart store credit card. You get 3% back on purchases you make at Walmart stores and their website, and on Grocery Pickup purchases.

Like Target, Walmart locations have grocery stores, which means you’re basically getting a 3% grocery rewards rate. Among the rewards cards we’ve researched and reviewed, 3% back for groceries is a top-notch rate matched or surpassed by only a few mainstream cards.

The Cons of Owning a Store Credit Card

Based on our research of the best store credit cards, we unearthed stark differences between how store cards function and how normal credit cards function. The three main areas of differentiation are APR, interest, and perks.

High APRs

More than half of the store cards we’ve researched have single APRs higher than 23%. The Target REDcard is a good example of this. No matter what your credit scores are, your APR will be 24.90%. As a contrast, the Chase Freedom Unlimited has a low APR of 16.99%.

This example of two different cards is important not only so you can see the difference in the APR but also so you know that cash-back cards like the Freedom Unlimited usually have a 0% period of, in most cases, at least 12 months.

So, if you spend $3,000 on your Target card in November and December for the holidays, groceries and other things, paying that off over 12 months will cost you $419 in interest.

You wouldn’t pay interest on that same balance if you used the Freedom Unlimited to make the purchases and then pay them off in 12 months.

Now, in some cases, you’ll find a store credit card that provides 0% financing. However, as our next section will explain, these offers are not the same as regular credit cards.

Deferred Interest

Many store cards use something called “deferred interest” when they make zero-interest offers. What this means is that they’ll give you 0% on your purchases for, say, six months.

If you don’t have your purchases paid off by the end of that six months, then you get hit with interest charges on the original purchase amount instead of the remaining balance.

Non-store credit cards don’t do this. If you’ve got a balance left at the end of a promotional 0% period, you only pay interest on what’s left.

A real-world example would be Best Buy’s credit card. At the time of publishing, they offered 18 months of 0% interest on purchases of $479 or more with a regular APR of 27.24%.

If you use the offer to buy a $1,500 TV and you paid $1,000 off by the 18-month deadline, Best Buy would retroactively charge you $408 in interest for the original $1,500.

A card like the Freedom Unlimited, however, would only charge you interest on that remaining $500, and only in the month following the end of the card’s 15 months of 0% APR. Also, since your interest payment is calculated on a daily basis, your first interest payment would be around $7.

Poor Perks

Most of the cards we researched had poor perks programs that made you choose between up-front rewards or long-term rewards.

This is in stark contrast to the rewards options you have with regular credit cards. Hotel rewards credit cards like the World of Hyatt Visa, for example, not only give you rewards on every purchase you make, but they usually upgrade you to a better status in the hotel’s loyalty program and you get yearly perks like a free night or extra points.

The best airline rewards cards typically offer you a free checked bag, priority boarding, priority check-in, and in-flight discounts. In some cases, they’ll even give you a free ticket each year.

Points and Cash Back Are Limited to Store

Several cards had cash-back bonuses or discounts, but those cash perks had to be used in the store and nowhere else.

The positive side to this is that you get to use your discounts at stores at which you already shop, especially if those stores are grocery stores – we spend more on groceries than every other variable spending category.

The downside, though, is that the rewards don’t have much flexibility to them, nor does the card.

For example, the Home Depot Consumer Credit Card can only be used at Home Depot locations or on their website. And, the only promos they ran at the time of publishing were zero-interest financing deals.

While those perks are great if you can spend at least $299 at Home Depot, they have no value at other stores.

A cash back credit card like the Citi Double Cash could earn you 2% back on your purchase and it gives you the liberty to comparison shop that refrigerator you were thinking about buying at Home Depot.

No Added Benefits

The final drawback to store cards is that they don’t offer the same level of benefits that regular credit cards do.

For example, the Chase Freedom Unlimited is part of the Visa Signature benefits program, which means you get car rental insurance, extended warranties, and purchase protection.

Store credit cards don’t offer these benefits. You’ll get extended merchandise return time frames and early access to Black Friday deals, as is the case with the Target store credit card, but that’s usually the extent of it.

Examples of How Regular Credit Cards Can Be Better Than Store Credit Cards

Earlier we mentioned that credit cards have shopping portals through which you can purchase merchandise and get discounts at stores like Gap. Sometimes the Discover discounts you get at Gap are better than the discounts you get by using the Gap card.

For example, Discover cardholders shopping at major retailers through the Discover Deals portal can save 20% on purchases at Claire’s, 10% at Gap, 40% at Men’s Warehouse, and 20% off appliances at Best Buy.

Let’s take a second to compare the rewards you get at Gap. Owners of the Gap Card will get a $10 cash bonus for every 1,000 points ($200 spent in Gap stores) and that bonus cash has to be used at Gap stores.

On the other hand, Discover cardmembers’ 10% discount means they get $20 off if they spend $200 at Gap, doubling the rewards you’d get with the actual Gap card.

Another example of how non-store credit cards can get you better rewards rate is the concept of rotating rewards, which means that every quarter there are certain purchases that can earn you 5% cash back via a Discover it Cash Card or the Chase Freedom.

Here’s a list of the holiday bonus categories in two popular cash back credit cards:

  • Discover it Cash: Amazon and Target
  • Chase Freedom: Walmart

This is a great example because, in the case of the Chase Freedom card, your Walmart bonus (5%) is better than the actual Walmart card (3%).

The Discover it Cash’s 5% bonus at Amazon and Target is equal to what the Amazon Prime store card and the REDcard offer, plus the benefits that come with owning the card (car rental insurance, purchase protection, etc.).

Bottom Line: Very Few Store Cards Are Worth It

Based on all the research we’ve done on store credit cards, we believe that you’d most likely benefit from using a regular credit card. There are very specific reasons why we’ve come to that conclusion.

According to FICO’s 2017 stats, more than 50% of consumers have FICO scores above 700, which pretty much means you’ll be able to score a credit card with an interest rate below 16%.

With such low interest rates available to a large chunk of the population, it just doesn’t make sense to sign up for a store credit card with an APR of around 24%.

It would be a wise choice to apply for a regular credit card if your FICO score is at 700 or above, as you can take advantage of low APRs that will make every purchase a bargain compared to store credit cards.

Other factors to consider are the lack of benefits that store credit cards offer as well as deferred interest and limitations on perks.

Based on our research, there are only a few situations in which we believe that a store card is worth it.

If you do your grocery shopping at a store offering between 3% and 5% rewards, consider using their store card. Those rewards rates are in the top-tier of rewards credit cards, store or otherwise.

Another situation in which store cards could be worth it is clothing. Certain stores like Target may have clothes that fit you well or exactly the kind of shirts, shorts, and accessories that you like buying your kids.

If you’re going to shop at one store – Target, let’s say – regardless of whether you have the store’s credit card, then that’s a good sign that getting a store card will be worth it for you. Target is a great example because they take 5% off at the register when you use your REDcard.

We also see gas cards being helpful even though we didn’t mention them earlier. The Shell Drive for Five card, for example, gives you $0.25 off every gallon for the first two months, then $0.05 off every gallon after that.

The Chevron Visa card will give you $0.20 off per gallon if you spend at least $1,000 a month on the card, with a rewards cap of $300 per year. In many cases, that discount amounts to more than 10% each gallon. If you spend $150 a month on gas, then your savings are $15 a month, or 1.5% of the $1,000 you were required to spend to get the discount.

That 1.5% rewards rate is equal to what you’d get with the Chase Freedom Unlimited or Quicksilver Capital One. Not only that, but Chevron is part of the Top Tier program, a qualification that indicates a company’s gas prolongs the life of your engine through the use of specific detergents.

Here’s our conclusion as we consider the pros and cons of store credit cards: Use the cards that maximize every purchase you make.

So, if you spend, say, $700 a month at Walmart because you buy groceries and household items them, their store card’s 3% rate is the best you can do.

If you spend another $200 a month at Target for various things, then the store card’s 5% discount is worth it.

For all other purchases that aren’t consistent at specific stores, try a cash back rewards card if you like getting money back and a travel rewards card if you want to use your credit card rewards for travel purchases.


J.R. Duren

J.R. Duren is a personal finance reporter who examines credit cards, credit scores and bank products. J.R. is a three-time winner at the Florida Press Club’s Excellence in Journalism contest and his advice has been featured in MSN and Fox’s money sections.


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