Most of us have gone shopping, online or in person, and seen an offer for a store’s branded credit card, often paired with an incentive like a signup bonus or a discount on that day’s purchase.
Store cards can be useful tools, especially if you frequent a specific store, but it’s important to understand their pros and cons before signing up.
What is a Store Credit Card?
A store credit card is a special type of credit card that is offered through a partnership between a retailer and a credit card issuer.
👉 For example: Amazon partners with Chase to offer an Amazon Prime credit card. Other stores partner with different lenders to offer their own unique credit cards.
What makes store credit cards unique is that they typically come with perks or rewards specific to that retailer. For example, Target’s REDCard Credit Card offers 5% off your purchases and gives you an extra 30 days to make returns.
Because the cards come directly from the retailer, they have more specialized perks and benefits than regular credit cards.
How Do Store Cards Compare to Regular Credit Cards?
Store cards and regular credit cards are quite similar in many ways. Both give you a way to borrow money from a line of credit when you want to make a purchase. When you use the card, the amount of the purchase gets added to your card balance.
At the end of each statement period, you’ll get a bill that you have to pay. If you pay the bill in full, you won’t owe any interest. If you carry a balance, interest will start to accrue.
Like many regular credit cards, store cards also offer rewards, though they’re typically tailored to the specific retailer the card comes from.
The biggest difference is that some store credit cards are closed-loop cards, which limits where you can use them.
Closed Loop vs. Open Loop
There are two types of store credit cards:
- Closed loop cards are not full credit cards. You can only use them at a specific retailer.
- Open loop cards, sometimes called co-branded cards, are full credit cards. You can use them anywhere you can use a typical credit card. However, their perks and rewards are typically focused on the specific retailer.
💡 Many stores offer both a closed loop and open loop card option. For example, Amazon shoppers can apply for the closed-loop Amazon store card or the open-loop Amazon Prime Rewards Visa Signature Card.
Before you apply for a store card, it’s important to check whether it’s an open-loop or closed-loop card.
In general, closed-loop cards are easier to qualify for but may have higher interest rates. Open-loop credit cards have stricter credit requirements but lower interest rates.
Do Store Credit Cards Affect Your Credit?
Store credit cards, like any other credit card, have an impact on your credit score. This is true of both closed-loop and open-loop store cards, which means it’s important to treat store cards like you would any other card.
If you make your monthly payments on time and keep your credit utilization low. If you do, you will build your credit score. If you make late payments or let your credit utilization get out of hand, you could harm your credit.
Store cards can be a great way for people to build credit. Closed-loop cards typically have easier qualification requirements than open-loop store cards and traditional credit cards.
The fact that you’re limited to one store when using the card reduces the lender’s risk. The retailer also has a vested interest in approving your application because you’re likely to shop there more frequently if you have a store card.
💡 To make sure that your store credit cards help, rather than hurt, your credit, treat them like any other credit card and take a few basic steps to use them responsibly. Sign up for automatic payments to avoid late or missed payments, and make sure to only use them to buy things you can afford. Aim to pay each month’s statement in full before the due date so you can avoid costly interest charges.
If you use a store card properly, you can improve your credit score and qualify for regular credit cards.
Watch Out for “Credit-Building Store Cards”
Some retailers, especially online ones, advertise their store cards as special credit-building tools for people who have bad credit or no credit. Some will even say that anyone can qualify.
These may sound appealing if you want to build credit, but it’s important to look at the fine print. Some of these cards have high fees, and in many cases, the products for sale are wildly overpriced. Avoid these stores and look for another way to build credit.
Store Credit Card Advantages and Disadvantages
Before signing up for a store credit card, it’s important to consider all the pros and cons.
➕ Pros:
- Easy approval. Store credit cards typically offer easy qualification, especially if you’re applying for a closed-loop card. That makes them a good way to start building credit.
- Unique rewards and perks. Because the card comes from a retailer, that company has far more flexibility in the benefits it can offer compared to typical credit cards. You might get discounts, extended return windows, unique offers, sales, or other benefits.
- No annual fees. The vast majority of store credit cards have no annual fee. If you want to avoid paying card fees, retailer cards are a good way to get premium rewards at no cost.
➖ Cons:
- Restricted to one store. If you get a closed-loop card, you can only use it at a single retailer. That makes it far less useful than a traditional card you can use anywhere.
- High interest rates. Store cards, especially closed-loop ones, tend to have higher interest rates than typical credit cards, which makes them very costly if you start carrying a balance.
- Poor rewards on other purchases. If you have an open loop store card, you can use it at different retailers but will earn less than if you used a generic rewards credit card.
- Limited reward redemptions. Most store credit cards limit your reward redemptions, making them less flexible than traditional cards. For example, the Kohl’s card offers rewards in the form of Kohl’s Cash, which you can only use at the retailer. Conventional rewards cards offer flexible cash back or reward points with more redemption options.
Should You Sign Up for a Store Credit Card?
Choosing a credit card is a personal decision. You’ll have to consider your financial situation and shopping habits.
👍 A store credit card might be a good idea if you shop at a specific retailer regularly. For example, people who shop at Target or Walmart for most of their shopping needs might want to get the Target REDcard or Walmart Credit Card for their unique perks.
👍 A store card can also be a good idea if you’re looking to build credit and can’t qualify for more traditional cards.
👎 If you don’t shop somewhere frequently, a store card from that retailer won’t be a good choice. Even if it’s an open-loop card that you can use elsewhere, the rewards you earn will be worth less to you than the more flexible rewards offered by traditional cards.
The Bottom Line
Store credit cards can be a useful tool for people who shop at a specific retailer regularly or people who want to build their credit. However, it’s important to remember that traditional credit cards will typically offer better rewards on purchases at locations other than that one retailer.
If you shop somewhere on a daily or weekly basis, consider applying for their store card. If brand loyalty isn’t your thing, you’ll be better off with a traditional credit card.
