We’ve all heard the offer at the checkout counter of, “Would you like to save 20% off your order today by applying for our store card?” and while that might be tempting, more often than not a traditional credit card would serve you better than a retail credit card.
Store or retail credit cards and traditional credit cards have a lot of similarities: You can revolve a balance, earn rewards, and build credit through responsible use (or damage it if you miss a credit card payment). However, store credit cards often involve some more restrictive terms.
Store credit cards often have a higher APR
One of the most important differences between the two is that store credit cards typically have a higher annual percentage rate, or APR. That means if you maintain a balance from month to month, you’ll have to deal with higher interest charges. According to CNET sister site Bankrate, the average credit card APR is around 19%, but it’s common to see a store credit card with an APR of 24% or more.
However, if you’re paying off your statement balance in full each month (as you should if you can afford it), you won’t have to worry about interest charges.
Some store credit cards can also provide some confusing terms. For example, rather than providing a standard introductory 0% APR offer to help avoid interest charges, they may instead provide a deferred financing offer. Deferred financing is a riskier offer. If you miss a payment, you could be charged retroactive interest starting from the date of the purchase.
Store credit cards have lower credit limits
Generally speaking, store credit cards offer lower credit limits than traditional credit cards. According to Experian, the average credit limit in 2020 was about $30,000. But with store credit cards, you should only expect a small fraction of that.
Store credit cards and their rewards can’t be used everywhere
Store credit cards come in two forms: a closed-loop credit card and an open-loop credit card. Closed-loop cards can only be used with their affiliated stores, while open-loop credit cards can be used anywhere their payment network is supported, meaning Visa or Mastercard.
If a store credit card is a closed-loop card, it won’t offer any rewards outside of the store it’s affiliated with. In comparison, open-loop or standard credit cards typically offer broader reward programs and can earn their rewards as cash back, points or miles across a wider selection of purchase types. Store cards generally earn their rewards as points or cash back.
Store cards also offer fewer redemption options than standard credit cards. They generally focus their redemption options on their affiliated stores, whereas standard credit cards offer a wide variety of redemption options, whether it be for travel, gift cards, statement credits or cash back.
The advantages of store credit cards
While there are a number of disadvantages to store credit cards (high APRs, limited perks and rewards, lower credit limits), there are a few positives.
- They’re typically easier to qualify for. This is particularly true of closed-loop cards. If you have poor or limited credit, you may have an easier time getting approved for a retail credit card. They operate the same as standard credit cards, meaning you can improve your credit with responsible use.
- They offer retailer-specific benefits. If there’s a retailer that you shop with frequently, a store credit card could offer special discounts, expedited shipping or other store-specific benefits.
That said, all retail credit cards aren’t created equal. There are some that have high enough APRs and misleading terms that make them not worth the trouble. However, there are some that are worth it.
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