The Inside Scoop on Retail Store Credit Cards

A number of the nation’s leading retailers now offer credit cards to their customers. Depending on how, when, and where somewhere shops, one card may be a significantly better choice vs another. We’ve rounded up 20 of the most popular retailers who offer credit cards and broken down what you need to know about the good, the bad, and the ugly of the cards themselves, as well as important background info about the category of store credit cards, so you can choose the store credit card that’s right for you.

Before You Apply for a Store Credit Card

Before you even apply for a store card, it’s important to know your credit score. Why? Because many stores will only accept your credit card application if you have a minimum credit score. And since all credit card applications (temporarily) ding your credit score, there’s no point in taking a credit hit if you’re not going to qualify.

Don’t know your credit score? No problem. You can check it for free in about 90 seconds with a company called Credit Sesame. In addition to quickly getting your free credit score, you can also learn tips and tricks on how to improve your score.

Kinds of Store Credit Cards 

Store credit cards are credit cards offered by popular retailers. Within a given store, store credit cards function just like “regular” credit cards, but in other stores, sometimes they function differently. The reason? Store credit cards fall into one of two categories: open loop and closed loop. 

Open Loop Credit Cards: Merchants offering these cards have partnered with a major credit card company- like Visa or Mastercard- to offer cards that can be used anywhere Visa, Mastercard, etc are accepted, but offer additional benefits- like early access to sales, additional cash back, or free shopping- at the partner stores. Open loop credit cards are “regular” credit cards that offer additional perks. 

Closed Loop Credit Cards: These cards can only be used at the store (or sometime a network of stores) whose name is on the card. These credit cards are not issued by a major credit card company like Visa, Mastercard, or American Express, do not feature their logo on the cards, and thus cannot be used at other retailers. However, people with bad credit may have an easier time being approved for these cards, making them a potential tool for credit repair.

It’s important to note that many stores offer both closed loop and open loop credit cards. Carefully evaluate your choices from each retailer before selecting the card that feels right for you.

While open loop cards are more useful in that they can be used in more than one store, closed loop credit cards can still be useful, in that they offer more rewards at their store. This can be a worthwhile perk if someone shops frequently at a given store. 

What to Know About Store Credit Cards

Regardless if a card is closed loop or open loop store credit cards have many of the same traits as regular cards. As with any credit card, applying for one will temporarily lower your credit score, and each application will shave off points, so only apply when you’re confident you meet the card’s requirements and will be accepted.

Even if you have excellent credit and are only applying for the card for in-store perks, the application for credit can signal to creditors that you’re in financial stress, thus making you a more risky borrower. But with a good payment history, the hit to your credit score will quickly be reversed. 

It’s also important to know that store credit cards are often targeted at those with lower credit scores. As noted above, there’s an inverse relationship between credit score and risk level, so those with lower credit scores are subject to higher interest rates. Store credit cards tend to have higher-than-average interest rates (often more than 25%), meaning you’ll be paying 25% more for your purchases, if you carry a credit card balance and do not pay it off in full each month. That amount can quickly snowball into a huge amount of debt.

Retail store credit cards often have low credit limits, too. Because closed-loop credit cards are not secured with an initial deposit and offer approval to a wider array of credit scores in an attempt to lure shoppers, the store tends to keep the limit low to reduce financial risks. 

The relatively low credit limit matters because one of the five components that determine a person’s credit score is their credit utilization- or percentage of credit they’re using, relative to the amount they have available. Credit bureaus recommend people use no more than 30% of their available credit, to maintain a strong credit score. If someone were to have a credit limit of $300 on their store credit card, they should use no more than about $95 at any given time, if they don’t want to negatively impact their credit score. 

Finally, keep in mind that closed loop credit cards can only be used at the store where they were issued. But for someone who frequently shops at a given store and/or spends a lot of money there, a store card might be worthwhile. 

Related: The 5 Key Factors That Can Quickly Hurt- or Help- Your Credit Score

What’s the Best Store Credit Card?

As with traditional credit cards, there is no one “best” store credit card, and the fit depends on an applicant’s spend at a given store/network of stores, if you’re able to pay the balance off in full each month, and how much they spend.  

Some retailers offer perks like 5% off total purchase price or 5% cashback on all qualifying purchases. If you shop regularly- or spend a lot of money- at this store AND are able to pay the balance to zero each month, these perks may best the rewards of regular-use cards. 

Stores also can offer card holders perks like free shipping, early access to sales, and extended return periods. These perks can help push one card into clear contention… just be sure to pay the balance down to avoid the high interest rates and impact of credit utilization!

Advantages and Disadvantages of Store Credit Card 

Are retail store credit cards worth it? This answer depends on how you plan to use the card and why you’re applying for it in the first place. Like traditional credit cards, store credit cards have distinct advantages and disadvantages. Understanding what you can- and can’t- do with one will help you to decide if a store’s card is right for you. 

When considering a store’s credit card, evaluate the following:

Open vs Closed-Loop: Can you use the card everywhere, or only at the store listed on the card? If you can only use the card at one store, make sure you shop there regularly/spend a lot of money there, or else the card might not be worthwhile. 

Benefits/Perks: does the store offer special discounts or cash back exclusively to card holders?

Requirements: What’s the minimum credit score required for approval? Some stores have lower minimum credit score requirements, so they can help you to rebuild credit if you’re accepted. 

Interest Rates: Does the annual interest rate increase after an initial low rate? If you’re unable to pay your balance off in full each month, the interest rate on store cards can be extremely high, thus not only negating the benefit of any store perks, but also negatively affect your credit score (for missing payments and/or credit utilization ratio) and adding a substantial amount you’d have to pay back. 

Do Store Credit Cards Hurt Credit, or Do They Help Rebuild Bad Credit?

Store credit cards may be easier to get than a traditional credit card, but they generally function in the same manner as any other credit card. As with other credit cards, store credit card applications do negatively impact an applicant’s credit score, at least temporarily, so in this sense the store credit card doesn’t help to improve credit scores. 

You’ll also get yourself in further credit score trouble if you carry a large balance (relative to the credit limit) or don’t pay the balance off in full each month, as interest rates on store credit cards are much higher than traditional credit cards. Missed or late payments also get reported to credit bureaus, and payment history accounts for the largest portion of your credit score- 35%.

But if you’re able to pay the balance off each month, store credit cards can help to rebuild bad credit. Most stores do not require perfect credit, so someone who has fair credit, but doesn’t have enough extra cash laying around to fund a secure card, could be approved for a store card and use it as a first step to increasing credit. 

Just make sure you check the fine print of cards applications, and know your credit score, to ensure you’re likely to qualify for the card and aren’t paying exorbitant fees. 

Related: 3 Things That Could Get You in Trouble with Your First Credit Card

How Store Credit Cards Work- In-store Rewards vs Cash Back

Often, shoppers choose to apply for a credit card at their favorite store because they’re attracted to the potential rewards that can come from becoming a card holder. Whether you’re interested in the discounts, extended warranties and return periods, or exclusive discounts and advance sale offers, it’s important to understand the difference in how rewards are paid out because not all rewards are the same.

The biggest difference in store credit cards rewards is the difference between in-store rewards vs cash back. The difference can be confusing, as marketing material is often intentionally misleading. 

Rewards: If a card is offering a certain percent back in in-store rewards, that means the reward can only be used in store and holds no external cash value. For instance, a store may offer 5% back in store rewards. If you spend $100 at this store, you’ve essentially earned a $5 voucher for future in store purchases. The $5 cannot be used elsewhere. 

Cash Back: This reward is just as it sounds: cash back to you, that can be used anywhere the card (co-branded by a company like Visa, Mastercard, or American Express) is accepted. Most typically the cash back will appear as a line item on your monthly credit card statement. 

Using the example above of spending $100 at a store offering 5% back, if you have a card that offers cash back, you’ll see a $5 discount on your monthly credit card statement.

How to Apply for a Store Credit Card

The process for applying for a store credit card is very similar to any other credit card- most applications can be filled out online. But some stores may still offer customers the opportunity to fill out physical applications in their stores. Online applications may or may not offer instant approval, but obviously, paper applications will take longer to process. 

Associates in stores that offer in-store applications may dangle a one-time discount just for applying, regardless of approval or not. While the discount may be alluring, keep in mind that any application will impact your credit score temporarily, so be sure to read the fine print- required income levels, credit scores, etc- before applying. Especially if you’re rejected, the hit to your credit score for application won’t be worth the one-time discount the store offers. 

Applying for a store credit card- whether open-loop or closed-loop- should be carefully considered and treated like the important financial decision that it is. Even if it’s not in the best interest of the customer, some retail associates will employ high-pressure tactics to coax a customer into applying for a credit card, as they potentially will earn a commission on the application. Impulsive decisions can get you into financial trouble, so it’s best to read the fine print of all credit card applications, research options, and carefully consider the pros and cons of applying vs hastily applying in-store.