If you’ve been shopping lately, then you know that it’s difficult to visit a chain store without being offered an application for a store credit card. And since many of these stores will give you a significant discount off of your purchase that day when you open an account, it can be very tempting to apply. Other benefits of store credit cards can include rewards on purchases, financing offers, and access to special promotions, but they tend to have higher interest rates, and can even induce cardholders to ignore better offers from competing retailers.
If you regularly shop at a specific store regularly, then getting that store’s credit card may make sense. But, if you tend to shop around at a variety of stores than a credit card like the Chase Freedom®, which offers 5% cash back at a rotating categories of merchants, may make more sense for you.
The Simple Dollar’s Top Picks for Best Store Credit Cards
- Target REDcard™
Best Store Credit Card for a Department Store
- Amazon Prime Store Card
Best Store Credit Card for an Online Retailer
- Lowe’s Consumer Credit Card
Best Store Credit Card for Home Improvement
- My Best Buy® Credit Card
Best Store Credit Card for Electronics
Pros and Cons of Getting a Store Credit Card
With store credit cards being offered by so many retailers, it’s important to take a step back and decide if this kind of credit card is right for you before signing up. These cards can have several advantages, to be sure.
- Store credit cards can offer excellent rewards, such as 5% worth of spending like the cards featured here;
- They can also have attractive promotional financing opportunities (although usually as an alternative to earning rewards);
- And, if you have a limited credit history or less-than-perfect credit, it’s often easier to qualify for a store credit card than it is for other types of credit cards.
Yet there are some downsides to store credit cards that are important to keep in mind. The rewards offered by store credit cards can make it less likely for you to bother shopping around for better deals at competing retailers. Store credit cards also typically offer very high interest rates compared to competitive cards you can get directly from banks. (According to the Federal Reserve, the average interest rate for all credit card accounts is around 12%, while even the best store credit cards tend to have interest rates above 25%.)
Finally, the deferred interest programs that store credit cards offer can be a risky way to finance purchases if you’re not careful. With deferred interest financing, interest charges are accrued from the day you make your purchases, and they can only be waived when you pay off your entire balance before the end of the financing period. If you fail to do so, even by just a few dollars, then you will be responsible for interest charges dating back to when your account opened, which could be hundreds of dollars. In contrast, the 0% introductory APR promotional financing offered by cards like the Chase Slate® and Chase Freedom® allow you to avoid interest charges for the entire 15-month promotional financing period, whether or not you are able pay your balance off before the financing period ends.
When a card is not part of a larger payment network, then it doesn’t make sense to carry it around unless you visit that store regularly.
Store credit cards make the most sense for those who regularly shop at the retailer offering the card, and are able to avoid interest charges by paying their statement balance in full each month. Those who shop around at a variety of retail stores, and those who need a card with a competitive standard interest rate should look instead at a good rewards card offered from a bank and avoid store credit cards.
The Best Store Credit Cards
Best Department Store Credit Card
When you’re looking for a credit card from a traditional department store, the Target REDcard™ must be on your list (especially if you already shop here regularly). It offers a 5% discount on all Target purchases in-store and online, with exceptions for gift cards, eye exams, and purchases from its pharmacy. Other exclusive cardholder benefits include free shipping from Target.com and a 60-day return policy, instead of the standard 30 days.
The Target REDcard™ is a store card that’s not part of a larger payment network such as Visa or MasterCard, so you can only use it to make purchases at Target stores and at Target.com. When a card is not part of a larger payment network, then it doesn’t make sense to carry it around unless you visit that store regularly. But if you get your groceries at Target every week, then it’s certainly a good idea to use this card to save 5% on everything.
In contrast, Walmart, one of Target’s main competitors, offers a store credit card, but it isn’t nearly as good. It only offers 1% cash back for purchases at Walmart stores, 2% at Walmart gas stations, and 3% for Walmart online purchases. It also fails to offer the benefits of the Target REDcard™ such as free shipping of online orders and an additional 30 days for returns.
Best Store Credit Card for an Online Retailer
Amazon Prime members can earn 5% back as a statement credit on all of their Amazon.com purchases with the Amazon Prime Store Card. Or, you can choose to receive interest-free promotional financing on some purchases instead. Purchases that total $149 or more are eligible to receive six months of financing, while 12 months of financing is available when your shopping cart reaches $599 or more. (Just note that this is a deferred interest financing plan, so you will be charged interest from the purchase date unless you pay off your promotional balance in full before the promotional financing period ends.) There is no additional annual fee for the Amazon Prime Store Card, which is only available to Amazon Prime members — the membership is $99 per year.
The Amazon Prime Store Card can only be used for Amazon.com purchases. By comparison, the Amazon.com Rewards Visa Card offered by Chase can be used anywhere Visa is accepted. It also features 3% back on purchases from Amazon.com and is not limited to Amazon Prime members. And, may be a better fit if Amazon isn’t where you primarily shop.
Best Home Improvement Store Credit Card
If you make regular trips to the home improvement store, the Lowe’s Consumer Credit Card is a good choice. This credit card can only be used for in-store and online purchases from Lowe’s, however, so if you don’t plan on shopping here regularly, it may not be worth it.
It offers 5% off of most purchases, excluding gift cards and a few premium appliance brands. Alternatively, you can choose to receive six months of deferred interest financing on combined purchases of $299 or more instead. Cardholders also have access to other options, including 36 months of financing at 3.99% APR, 60 months at 5.99% APR, or 84 months at 7.99% APR.
The Home Depot, by comparison offers two different consumer charge cards. Neither of these cards features any discount, let alone the strong 5% offered by the Lowe’s card. Instead, The Home Depot offers the Consumer Credit card with up to 24 months of promotional financing, or a Project MasterCard with a fixed credit line.
Best Electronics Store Credit Card
When you’ve got to have the latest gadgets, the My Best Buy® Credit Card can save you 5% on purchases or you can sign up for one of two deferred interest financing options — either six months of interest free financing on purchases over $199 or 12 months of financing on purchases of over $399. As with the other deferred interest financing programs, interest will be charged to your account from the purchase date if the entire purchase is not paid in full before the end of the promotional financing period.
You can use this card anywhere that Visa is accepted — not just at Best Buy and earn 2% back on dining and groceries and 1% back in rewards on all purchases.
How should you use these cards?
The key to making the most of these store credit cards is using them properly. First, these cards can be a great way to build a credit history when you don’t have one. For one, they often have less-demanding credit requirements than credit cards you can get through banks. Making on-time payments and paying your statement balance in full every month are great ways to raise your credit score. This is actually how my parents first built up their credit histories — by buying a typewriter with a Sears credit card decades ago. This technique still works well, but only when you meticulously make every payment on time.
Another reason you should always pay each month’s statement balance in full: avoiding interest charges. Remember: The average interest rates of store credit cards are nearly double of what is available from traditional bank credit cards. And should you choose to utilize one of these cards’ promotional financing programs, then you’ll need to be extremely careful to pay your entire promotional balance off before the financing period ends. By paying just a little late, or coming up just short of paying your total balance, you could end up owing hundreds of dollars in interest charges that you hadn’t planned on.
If you have difficulty managing all of your accounts, you’ll want to avoid store credit cards. The late fees and interest charges you’ll pay from an occasional missed payment may be costlier than the value of all of the rewards you’ve earned.
Finally, be careful that you’re not so loyal to a store just because you have its store credit card that you stop shopping around for the best deals. There’s no point in receiving 5% back in rewards if you could have purchased the same item somewhere else for 10% less.
Just because store credit cards are everywhere doesn’t mean that they’re for everyone. Those who use store cards may enjoy rewards for spending, exclusive offers, and additional financing options, but at the cost of higher standard interest rates (generally, double than that of bank credit cards). Store cards can be a useful addition to your wallet, but only if you shop at that specific store regularly. If not, you may be better served by a bank credit card with good rewards like the Chase Freedom®.