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The Pros and Cons of In Store Credit Cards

We’ve all been there. You’re about to complete a purchase at a retail store when the person working at the checkout counter asks if you’d like to sign up for the in store credit card. You weren’t actually considering it, but then they tell you that sign up and approval take less than a minute to complete and that you’ll enjoy 20% off on your purchase today.

In that case, you say, why not? 

Well…there may be a couple of reasons why not actually, including high interest rates, low spending ceilings and limited usefulness outside of a few retail establishments. Does that mean that you shouldn’t sign up for the offer?

Well, not necessarily. There are also plenty of advantages that come with in store credit cards including exclusive sales, generous rewards programs and the aforementioned sign up bonus. So what it really means is that you have to carefully evaluate each in store credit card offer before signing on the dotted line. There are pros and cons to getting the in store credit card. Be sure you understand exactly what they are before accepting any offers.

Of course, branded cards come in a wide variety. You can get a card from your favorite clothing retailer for cash back on apparel; a card from your grocery store for discounts on all foods purchases; or a card from a big box store like Walmart or Target for pretty much all other purchases on your shopping list. In other words, there are store cards for just about every national retail chain.

But are these offers actually worth it?

As we’ll discuss below, the big attraction for most shoppers is the rewards package that comes with your new store card. Of course, there are plenty of awesome rewards based credit cards that are not affiliated with a specific store or brand. For more on the kinds of rewards that you can enjoy for things like gas purchases, items from grocery stores, and eligible travel purchases, check out our look at a few credit card offers with unique bonus categories and generous rewards.

Pros of Store Credit Cards

There are plenty of good reasons to sign up for a store credit card, especially if you happen to frequently shop at the retail store in question. From bonuses awarded at the time of account opening to everyday discounts on all card purchases in store and online, the right store card could be quite beneficial.

Sign Up Bonus

To borrow an old phrase, this is how they getcha. There’s always a hook and it usually comes with your account opening. In most cases, your retail store card sign up bonus will translate into a steep discount on the item you’re purchasing on the day you sign up. And a lot of times, it’s totally worth it, especially if you already have a strong credit rating and you know you’ll be able to pay off your balance in full without incurring any interest charges.

If you are making a sizable purchase and you can receive 10-20% off the purchase price just by signing up and using your new store card to complete the transaction, it could save you hundreds of dollars on the first day alone. The credit inquiry that comes with your sign up could temporarily cause a small dip in your credit score. However, most responsible credit card users will rebound quickly from this dip.

In other words, with the right bonus offer, your immediate savings will usually be greater than the temporarily negative impact on your credit rating.

Special Financing Options

One reason that store cards are so popular is because they are often offered in tandem with big ticket purchases. For instance, it may be commonplace for a furniture store or appliance retailer to offer a branded credit card as a way to finance a purchase that might be too expensive to pay for in one fell swoop.

Often, retailers will offer consumers the option of signing up for a credit card under temporary promotional financing terms. For instance, when buying a new couch with a store card, you may qualify for six months of 0% APR financing. In essence, this gives you the ability to pay for your couch through six separate installments without incurring any additional penalties or interest fees.

However, it’s also important to understand exactly what happens to your agreement if you fail to pay off your balance by the end of this promotional financing period. The cost may be quite steep, in fact. According to an article from Bankrate, consumers should “be aware that ‘0 interest’ store offers may actually be deferred interest promotions. What this means is that, if you still hold a balance when your promotional period expires, you could incur retroactive interest based on your average daily balance back to your original purchase.”

In other words, if you fall short on your end of the financing agreement, you could be looking at a pretty big penalty.

Store Points

The right store credit cards can translate to some pretty generous rewards, especially those that employ a points system. Many in store credit cards award you points with every purchase that you make. These points may translate directly into dollar bills.

As the article from Experian explains, “Some store credit cards offer tiers of rewards so that the more you spend, the more perks or discounts you qualify for. If a retail credit card offers points for purchases, you may be able to convert those to cash. For example, you might earn rewards worth between 1% and 5% of your spending depending on your reward tier. Some retailers have certain days when you can get higher rewards for your spending on the card.”

This means that any time you visit the checkout counter in your favorite store, you could have some pretty deep discounts just waiting to be spent.If you frequently shop at certain retail stores, the in store card may indeed be worth it.

Exclusive Sales, Special Discounts and Cash Back

It could also be worth it if you plan to take advantage of any number of bonus categories or rewards. The best store credit cards will usually come with a variety of benefits that are entirely reserved for cardholders. You may receive special coupons in the mail, access to special online sales, and rebates for certain purchases.

And as the article from Credit Karma explains of retail store credit cards, “many reward shoppers for their loyalty. In addition to sign-up incentives, such as a discount on your first purchase with the card, some cards may offer ongoing discounts whenever you shop.”

For instance, when you use the Walmart credit card to shop for in store Walmart purchases, you receive 2% back on every item. The discount is even more generous when you use the card to shop online. Online customers of Walmart pay 5% less on all purchases made through the megastore’s website.

Accessibility Even For Those With Less Than Stellar Credit

In store cards are designed to be more accessible to a wide variety of prospective shoppers. In other words, the threshold for approval on one of these offers is typically lower than the threshold for a traditional credit card. You may be able to get approved without having “Excellent” credit.

This is because many store cards are designed to be accessible to “subprime borrowers,” those who carry higher credit risk to lenders. Because of this accessibility, store cards can actually be a great way to build a credit history. As long as you use this card responsibly and keep a zero balance, it could place you on the pathway to becoming a more ideal borrower in the eyes of lenders.

Of course, the flip side of this higher accessibility is often the extension of less than favorable terms. A store card issuer may compensate for their heightened exposure to risk by charging a higher annual fee, higher foreign transaction fees, and higher interest rates. If you maintain a zero balance on your credit card, these interest rates should not impact you. However, any time you do carry a balance on an in store card, you can expect to pay particularly high interest fees.

Cons of Store Credit Cards

Those higher interest fees are just one potential drawback of utilizing for an in store card. As we’ll discuss here below, there are actually ways in which the wrong store card can negatively impact your credit score. Make sure you understand these drawbacks before selecting an offer.

High Interest Rates

Once again, this is easily one of the most significant drawbacks to signing up for one of those store credit card offers. While many of the rewards and bonuses can be appealing, exceedingly high interest rates may threaten to undercut these benefits. The reality is that many in store credit cards carry a significantly higher than average APR.

At the time of writing, the average APR for in store credit cards is nearly 29%. This is an all time record high interest rate, and underscores one of the inherent dangers of signing up for in store credit cards. If you aren’t prepared to pay your balance in full every single month, you run the risk of accumulating some rather steep interest fees.

In fact, these high interest rates are one of the likely reasons that borrowers using store cards versus traditional cards are at a heightened risk of falling behind on their monthly payments. According to an article from Credit Karma, “Heftier interest payments may be one factor that leads some Americans to default on these store cards. Equifax reported that the percentage of severe delinquency on private-label retail credit cards rose to 4.65% in May 2018 — and that delinquencies were at their highest level since early 2011.”

It’s always advisable to keep a zero balance on your existing credit cards to avoid paying interest fees. Given the interest rates associated with in store credit cards, this recommendation takes on added importance.

Low Credit Spending Limits

It is common for in store credit cards to come with a relatively modest initial credit limit. No big deal, right? You weren’t planning on spending that much to begin with.

Well, it’s not that simple. When you make purchases using a credit card with a low spending limit, it can have a direct and negative impact on your credit score. This is because of something called a “credit utilization rate.” This rate is part of the formula used to calculate your credit score and is based on how much credit card debt you have relative to how much spending capital you have. Ideally, the former number is substantially lower than the latter number.

The lower your credit utilization rate, the better. Lenders like to see that you aren’t spending up to your credit limit. Unfortunately, some in store cards can alter this impression by offering very low spending limits. 

Let’s say, for instance, that you sign up for a card issued by a clothing retail with a $1000 spending limit. If you buy $500 worth of clothing using this card, your credit utilization rate will be 50%. 

Contrast this with the credit utilization rate for the same purchase on a traditional credit card. According to current data, the average spending limit across all credit cards is nearly $13,000. The same $500 purchase amounts to less than 4% utilization.

In other words, making the same purchase on a normal credit card would likely have a more favorable impact on your overall credit outlook. As the article from Credit Karma points out, “Credit card issuers like to see a low credit utilization rate — experts recommend below 30% — because this is a sign that you’re a lower risk customer. If you’re going to use a store credit card, pay off the balance in full every month to keep your utilization rate low.”

Otherwise, evidence suggests you’re probably better off foregoing this card in favor of a traditional credit card with a generous rewards package.

Limited Usefulness

Before you decide to sign up for an in store credit card, find out whether or not this card can be used to shop other retail stores or brands. As an article from Bankrate explains, “Retailers offer two types of credit cards: store credit cards and co-branded credit cards. Store credit cards, sometimes called closed-loop cards, can only be used at that particular store or chain of stores. A co-branded card, on the other hand, is an open-loop card that can be used anywhere the card network (such as Visa or Mastercard) is accepted. In this case, it may have a particular retailer’s logo on it, but it can be used widely.”

Naturally, having a co-branded card can offer more flexibility and greater value. In other words, if you do plan to sign up for a retail store card, you should be highly selective about which offers you accept. Given some of the other drawbacks cited above (particularly the potential impact on your utilization rate), you may want to limit yourself to store cards that can be used for purchases from a number of different stores and brands.


As we mentioned, applying for an in store credit card can cause a temporary drop in your credit score. But accumulating debt, missing payments, and bumping up against your spending limit on your store card can actually carry long term consequences for your credit outlook.

Before you sign up for a store card, or any credit card offer for that matter, make sure you understand how certain spending behavior and credit card usage can lower your credit score.