The Pros and Cons of Signing Up for a Retail Store Credit Card

pros and cons of store cards

You’re about to complete a transaction when a clerk asks if you’d like to receive a discount by signing up for a retail store credit card. We’ve all been asked this before. The question is, should you do it? In order to make an informed decision, it’s important to understand what a store credit card is, how a retail credit card works, and whether or not it will work to your advantage.

What Is a Retail Credit Card?

Retail store credit cards are pretty common. By partnering with banks or major credit card networks, retailers can issue a signature card that works in its stores and provides customers with certain benefits—but this isn’t the same as a typical loyalty card, where you collect points. A retail credit card is a real credit card, and because it typically has low credit limits, low minimum requirements, and high annual percentage rates (APRs), it’s simple for people to qualify for.

How Do Retail Credit Cards Work?

Once you have a retail store credit card, you’ll likely have access to discounts, rewards, and other perks, such as interest-free financing on a large purchase for a set period of time. But it’s unlikely that you’ll access the same range of rewards you’d get from a more conventional credit card issuer, such as cash back or airline points.

There are two different types of retail store credit cards: closed-loop can only be used in a single store, whereas open-loop works at any store under the retailer’s corporate umbrella.

In most cases, you can use your retail store credit card as much or as little as you want. Or you can choose not to use it at all, once you’ve taken advantage of the initial offer you signed up for. In most cases, there will be no consequences; the worst that can happen is that the retailer might deem the card inactive and cancel it.

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pros and cons of store cards

Benefits of Retail Credit Cards

Having a retail store credit card can come in handy in the right circumstances. There are many reasons for this, but here are four advantages to keep in mind:

  • It’s unusual to be denied a store credit card, since they come with specific parameters that minimize risk for the retailer and the partner issuer. Regardless of your credit score, if you want a store credit card, you’ll likely be approved for one.
  • The majority of retailers don’t charge annual fees, which is why you could stop using it and never have to worry about reminders, notifications, or penalties. If you like the retailer, save money through the discounts and perks, and are diligent about paying off your outstanding balance, then maintaining a retail store credit card can’t hurt.
  • Retail store credit cards come with rewards, including irresistible first-time offers. If you’re a loyal customer to a particular retailer, the savings you obtain through your store credit card may even be superior to the rewards you’d collect with a normal Visa or Mastercard.
  • A retail store credit card can contribute to your credit diversity and help you build your credit history, since most of them report to major credit bureaus. However, not all retail credit cards report to credit bureaus, so always confirm with the card issuer.

Drawbacks of Retail Credit Cards

All of those advantages are matched by potential disadvantages. Here are three reasons to think twice about signing up for a retail store credit card:

  • A retail store credit card may have a negative effect on your credit score. Opening a new credit card adds a mark to your credit report—and too many marks may be interpreted by potential lenders as financially irresponsible, which can come back to bite you when you’re trying to make a major purchase, such as a property or a car. Never sign up for multiple retail credit cards within a short span of time.
  • The APR on store credit cards is usually pretty high, compared with typical credit cards. It’s not uncommon to see cards that charge 25%, 30%, or even upwards of 35% interest.
  • You might be tempted to spend beyond your means, especially if you have a retail store credit card that offers points, perks, or cash back after buying a certain amount. And as a result, you end up accruing interest on debt at exorbitant rates.

Should You Sign Up for a Retail Credit Card?

There’s nothing wrong with retail store credit cards, as long as you can pay them off in full and resist the urge to overspend. If you have a favorite store that you love to shop at, by all means, take advantage of those perks—but only buy what you can currently afford, and settle your balance right away to avoid those high APRs. When all is said and done, it’s up to you to play your cards right. Be smart, and take advantage of the bonuses and benefits retailers offer without letting them take advantage of you.

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