How Store Credit Cards Are Different From Regular Credit Cards
It's hard to shop at any retailers these days without being asked if you want to signup for their store credit card. Even online retailers show a pop up offering their credit card to you. It's tempting to sign up for a store credit card and save up to 20% on that day's purchase, but store credit cards often aren’t worth it compared to regular, or general use, credit cards branded with a major processing network.
Unless they’re co-branded, store credit cards can only be used in a specific store or family of stores. An American Eagle store credit card can only be used on purchases made at American Eagle. Similarly, a Target REDcard can only be used in Target stores. The exception is when a store credit card is co-branded with a Visa, MasterCard, or American Express logo. Most stores offer at least one co-branded credit card in addition to its store credit card, but the co-branded card typically has more stringent qualification criteria.
By comparison, general purpose credit cards, even co-branded store credit cards, can be used at any merchant that accepts credit cards from that processing network. They're just like any other credit card, but purchases made in the affiliated store will typically earn higher rewards or other benefits. You typically won’t run into any problems using a Visa or MasterCard.
Higher Interest Rates
Store credit cards often have higher interest rates than regular credit cards. Retail store credit cards have an average APR of 26.01% while general purpose credit cards have an average rate of 21.10%, according to a 2019 survey from CreditCards.com.
The higher interest rate means you’ll pay more interest when you carry a balance and it will take you longer to pay off your balance than if you had a credit card with a lower interest rate. Cobranded store credit cards tend to have slightly lower interest rates than those that aren’t cobranded, but even these rates are higher than for credit cards without a retail store affiliation.
Restrictions on Rewards
With store credit cards, rewards are relatively difficult to earn and have limited options for redemption. Most every store credit card only rewards you on purchases you make in that store, since obviously, you can’t use the credit card anywhere else. Once you accumulate enough rewards for redemption (usually a gift certificate or coupon), you can only use it in store and sometimes you have to use your credit card to redeem the reward.
Cobranded store credit cards give you the opportunity to earn rewards on your all purchases and higher rewards on your purchases made in that store. Your options for redeeming may be limited to a coupon or discount that you can use in that store.
Outside of store credit cards, rewards credit cards reward you with cash back in the form of a check or statement credit, points to use toward merchandise or a variety of gift certifications, or miles to offset travel expenses.
Zero Percent Interest vs Deferred Interest
Store credit cards don’t have APR perks like 0 percent interest-free period. What you might find instead, particularly in stores that sell big-ticket items, is a deferred interest promotion. With deferred interest, you must pay the balance before the promotion period ends to avoid being charged interest. Otherwise, if any of the balance remains, you’ll get hit with backdated interest for the entire promotional period. With a true 0 percent interest rate promotion, you’ll only be charged interest on the balance that remains after the promotion period ends.
Store credit cards usually have low credit limits, at least to start with. It’s not uncommon for cardholders to be approved for a $300 or $500 initial credit limit on a store credit card. A credit limit that low is easy to max out in a single day, especially if you've received a credit card from your favorite store. That’s not to say that you’ll automatically be approved for a higher credit limit with a general purpose credit card, but it’s just more likely than with a store credit card.
Impact To Your Credit History
Regular credit cards are better for your credit. Store credit cards are relatively easy to qualify, making them a good option for first-time credit card users or people looking to rebuild their credit. However, store credit cards only go so far as to establish a good credit history. To reach a good credit score, you’ll eventually need to get a major credit card, even if it’s a co-branded version of a store credit card.
Store credit cards may be good for getting started with credit. Once you’ve established a good credit history, a general purpose credit card or a co-branded store credit card will be a better option.