Should buyers beware of store issued credit cards?
Save while you shop
Most people avoid store cards because they think that they do more harm than good. Any card can be bad if the cardholder isn’t responsible. In actuality, some store cards can be really beneficial and worth having! All it requires is knowing what the card has to offer and how it can benefit you.
Having a high-interest rate is a common theme among store cards. Most store cards have an APR starting at a minimum of 21%. That is a big reason why many people don’t bother to get one. If you’re not careful, the money paid in interest will offset any discounts you would get from using the card. However, just like with a major credit card, your goal should be to pay the store issued card off every month. If you already regularly pay your credit card bill in full monthly, then you will do just fine with a store card.
If you have less than great credit then a store issued credit card could be just what you need! Store cards usually have an easier qualification process. You could get approved and use the card to improve your credit by paying the bill on time. Before applying for your favorite store’s card make sure they report to the credit bureaus. Most retail cards do, but you want to make sure before you have your credit take the inquiry hit.
What’s in it for you
If you’re not trying to improve or establish credit a store issued card may not have much appeal to you. However, a lot of store cards also offer discounts and perks. Who doesn’t like to save when they shop?!
Different stores offer different things. Lowe’s credit card offers 5% off of every purchase under $298. If your purchase is $299 or more you can choose between 6 months 0% interest or 5% off the total amount. Walmart‘s rewards credit card offers 5% off of Walmart purchases, but you can also use the card at restaurants, travel, and anywhere else Mastercard is accepted. That’s just two stores. Hundreds of stores have their own store cards with personalized perks.
Open-loop vs closed-loop
In addition to looking at the interest rates, perks, and discounts when deciding on a store-issued card, you should also consider if it is closed-loop or open-loop. An open-loop card means that it can be used anywhere the issuing credit network is accepted. Visa and Mastercard are the most popular.
A closed-loop card means that it can only be used to make purchases at that store. For someone needing help with their credit having an open-loop card can give a lot of flexibility until established enough to qualify for a major credit card. Also, an open-loop card will make it easier to accrue points and rewards to use at the issuing store. Neither one is better than the other. It’s just something to consider to determine if the card is worth it for you and your lifestyle.
Debit vs credit
Target provides options when it comes to their card services. Potential cardholders can choose between a Target Debit Card or Target Credit Card. Both are considered a “RedCard” and have the same perks and discounts: 5% off of every purchase; early access to special deals; exclusive REDcard items, free two day shipping; and more. The difference is in the payment. The credit card acts as a traditional card in that you charge now and pay later. The debit card links with a checking account and withdrawn from the account as an ACH payment within 1-3 days. Both are closed-loop and can only be used at Target.
If you already regularly pay your credit card bill in full monthly, then you will do just fine with a store card.
Store cards are not as bad as people make them seem. You don’t need a store card for every single store you shop it. However, having a few for stores that you shop at frequently can be beneficial. The small percentage that you save off of every purchase can add up quickly. Having an extended amount of time to return an item can come in handy. Free 2-day shipping is priceless. No one likes to pay for shipping. See how the store card can save you money and that will determine if it’s worth it for you.
A deeper dive — Related reading from the 101:
Learn why it is important to pay more than the minimum payment on a credit card.
Understand the benefits of the Apple credit card and why it may be a worthy store card.