Borrow Credit Cards

The Truth About Store Credit Cards: Good Deal, Or Good Riddance?

Sophia Surrett  |  August 9, 2021

Victoria’s Secret, Old Navy, T.J.Maxx, and many more stores all have credit cards that help you rack up rewards and help save money — at least, that is, in the sales pitch.

How many times has this happened to you: You’re standing in your favorite chain store, about to pull the trigger on $100+ worth of merchandise, and the salesperson says to you, “Would you like to charge that to your store card? You can save 20% if you open one today!” It sounds incredibly enticing — after all, who doesn’t love an on-the-spot chance to save money? Perhaps the salesperson also promised early access to deals and discounts, even in-store events that sound like fun… But the offer that’s on the table isn’t just a chance to save money — it’s a real credit card, which impacts your credit score when they run the credit check to approve you for the card, and if you aren’t diligent about paying off the card in full every month, it can damage your credit report, and leave you saddled with debt.  

The average American has around four credit cards, according to data from Experian, and often carries at least one retail or department store credit card. Store cards may initially be appealing to the consumer, since they don’t typically have annual fees, and the sales pitch can sound downright excellent on the spot, but they do have disadvantages. Here’s a breakdown of what to keep in mind and what to look out for — because no one should be making an on-the-spot decision to open a credit card while standing at a cash register. 

Good For Building Credit, But Limited Usage

Yes, it’s easier to get approved for store cards than traditional cards, but they usually come with a low credit limit, around $2,000 to $2,500 in the beginning, but limits can be as low as $1,000, according to data from Equifax. This is part of the reason why these cards are easier to get approved for — with a low credit limit, you’re less of a risk to the lender if you don’t pay your bills, so they’re more willing to approve your card membership. And with no annual fees, store credit cards can be a great way to build credit at a low cost, says Jill Gonzalez, Wallet Hub Analyst. 

But in order to keep your credit score strong (or growing in the right direction if you’re just starting out!) you’ll need to pay your bills on time, and in full, and you’ll need to keep your credit utilization low. What does that mean? When you keep your credit utilization low, you’re using less than 30% of your available credit limit. This means that if your credit limit on a store card is $1,000, then you’ll need to make sure you charge no more than $300 at once. (And then, of course, pay your bill in full at the end of the month.) 

Easy-to-Meet Credit Requirements, But High-Interest Rates

As we just explained, getting approved for a store credit card is usually easier than getting approved for a traditional card, so if you’ve previously done damage to your credit score and you’re looking to get things back to a good place, a store card can be a good way to get there, if — and this is a very big if — you pay your bills in full and on time every month. Not only is this the path to improving your credit score, but also you’ll be saving yourself potentially hundreds (if not thousands) of dollars in interest charges. One of the biggest complaints surrounding store credit cards is their high interest rates — an average of 25.9%, compared to 19% for traditional cards, according to data from Bankrate. This means if you don’t pay the entire card balance each month, you might end up paying nearly 26% in interest charges, depending on your card’s interest rate. Let’s do the math on that. Let’s say you have a balance of $1,000 on a store card in a given year, and you only pay the minimum amount each month. With an interest rate of 26%, it would take you 126 months to pay off your debt, and by the end of that time, you will have spent $1,473.32, or $473.32 in interest — meaning that you will have more than negated any savings you might have gained when you applied for the card. (And we did this math using Bankrate’s Credit Card Calculator here. Give it a shot if you’re curious about your interest and balances on any card!) 

The Truth About Rewards 

Who doesn’t love rewards and discounts? That’s what stores are counting on when they ask you to sign up. But keep in mind that those rewards will get you nowhere as soon as you step outside the store — if they’re offering you 10% off of your purchases, or cash back rewards for spending, you’ll only be benefitting from those offers at that particular store. If you’re looking to earn cash back rewards on purchases like gas or groceries, a traditional credit card is absolutely the way to go.  But, if you frequent that particular store regularly, the card might be worth it, depending on how much you spend annually, says Benet Wilson, Senior Editor at The Points Guy. The only way to know for sure is to put pen to paper and do the math on how much you spend at that store in a given year.


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