Yahoo Finance Store credit cards: The full breakdown
What’s a store credit?
Do store credit cards build credit?
How to apply for a store credit card?
Are store credit cards bad?
What stores have credit cards?
Sometimes the offer made at the register for a sizable sales discount in exchange for opening a store credit card is too tempting to pass up.
Store credit cards, even though limited in use, come with a number of perks, rewards, free online shipping, exclusive sales access, and other benefits that are attractive in the eyes of loyal shoppers.
However, the nation’s gaze seems to be drifting away from store cards, according to a recent survey. LendingTree has polled shoppers’ attitudes and usage of store credit cards since 2018 and the findings reveal a change of heart. Down from a 44% peak in 2020, just 29% of 2021’s holiday shoppers reported an interest in applying for store cards compared with 32% in 2019 and 24% in 2018.
Just because retailers are providing shoppers with the bait doesn’t mean store credit cards are right for everyone and are appropriate for their financial habits.
“Credit cards are for convenience, not as a way to supplement income...if you’re living on the edge, you might turn to credit cards to make ends meet,” Katie Bossler, quality assurance specialist at GreenPath Financial Wellness, told Yahoo Finance. “This approach may solve a problem short term, but can cause financial difficulty long term.”
What’s a store credit card?
Retailers partner with lending banks to offer approved customers revolving lines of credit to make purchases at that specific retailer. A store credit card works just like a regular credit card, except it is limited in use and can only make purchases at its issued retailer. These closed-loop cards hamper spenders’ ability to swipe outside of the issuing retailer’s network. On the other hand, open-loop, or general-purpose cards can be used anywhere credit cards are accepted.
Despite narrow spending abilities, some store cardholders say carrying the additional plastic is worth it for the exclusive perks and kickbacks like discounts, cash back, rewards, and access to special financing. Often, cardholders get a big initial discount on their first purchase as a way for stores to entice them to sign up for the card in the first place.
But shoppers shouldn’t get distracted by the perks because store credit card’s interest rates or average APR’s are “typically higher than that of general-purpose credit cards,” according to Bossler.
The recent increase to interest rates over recent months by the Federal Reserves has brought “the cost of using credit now – either general purpose or store credit – much higher and therefore credit should be used prudently,” Bossler explained.
Do store credit cards build credit?
Yes, if used responsibly, store credit cards.
Since store credit cards are typically less selective than general-purpose credit cards when it comes to approving cardholders, it’s easier to get one if you don’t have perfect credit.
There is a catch, however. A store credit card will only strengthen credit if you pay the bill on time every month and you don’t spend more than the credit limit, Bossler said. Late payments and maxing out credit lines hurt the credit history you’re working to build. If you’re opening a card because you can’t pay cash for items the store sells, then you’re going about it the wrong way.
“If the purchase amount is not soon paid off, the cost of carrying a balance on that store credit card will soon overtake any short-term savings,” she said.
And if you end up missing payments — maybe because you ran up your outstanding balance too high — that could hurt your creditworthiness as well, just like skipping payments on any other credit obligations.
You may be tempted to sign up for multiple store credit cards during major shopping seasons like back-to-school or holiday shopping to reap as many upfront discounts as possible to reduce your overall spending. Be careful.
To get approved for a store card, the retailer — and the financial institution backing the card — must pull your credit report as part of the application process. This is called a hard inquiry and can ding your credit score. Too many hard inquiries in a short period of time will hurt your credit score even more because it signals you’ve become a greater default risk with so many new lines of credit. Only apply for new credit card accounts of any type when you really need them.
How to apply for a store credit card?
Retailers are so eager to get their branded plastic in your wallet that they’ll hit you with their sales pitch at the register. If not, find the customer service desk for application information. Online shoppers will receive their invitations to apply with banner ads or pop-ups or at check out.
Regardless of retailer, or filing in person or online, the application process is fairly standard. Before any lender extends credit, they’ll use the applicant’s financial health to determine approval. Be prepared to share contact information like full name, address, phone number, and email; personal information like date of birth, Social Security number, and mother’s maiden name; and income data such as gross annual household income and monthly rent or mortgage payments.
Once the information has been submitted, a decision is usually immediate and the newly approved cardholder is able to start spending and is eligible for any associated on-the-spot discounts. If there’s a decision delay or an outright denial, applicants will typically receive a mailed letter in a week.
Are store credit cards bad?
Yes and no. It hinges on the cardholder’s habits and intentions.
For the loyal power shopper who regularly spends on necessities like groceries or gas, and has the ability to pay the bill in full every month, a store card could equal savings. Using a store card to establish or repair credit, or leverage cash back or similar savings on a major purchase can be a big boon for wallets and financial health, but cardholders should know the drawbacks before applying.
High interest rates: Store credit cards come with rates that are higher than regular credit cards, which is an important consideration if you often carry a balance.
They can only be used at a particular retailer: Compared with general-purpose credit cards that almost always come with better rewards, interest rates, and terms, it’s in the best interest of the cardholder to spend with an open-loop card instead.
Vague financing phrases: Research terms and phrases like “deferred interest” in the fine print before opening a card, especially if the introductory offer includes 0% APR for a certain period.
Incentives to keep spending: Research links credit card swiping with overspending and cunning retailers have designed store cards to get you to shop more by extending premium rewards and perks to high-frequency shoppers and ensnaring them in a spending spiral.
What stores have credit cards?
This is where big boxes eat mom and pop’s lunch, so to speak. Look to major online retailers, department, furniture, and electronics stores, home improvement centers, grocery chains, and gas stations to likely have their own store cards. Many of them are backed by Synchrony, a financial services company, which would also be your point of contact for any questions related to your card or billing.
In a nutshell
Store credit cards can offer perks that help you save money while shopping at a specific retailer or restaurant, while also providing an avenue to build credit for those with less-than-perfect credit if used and managed responsibly. But like all types of revolving credit, these cards can backfire if you can’t pay your bills on time or keep your balances in check, made worse because interest rates on store credit cards are higher than those on regular cards.
Stephanie Asymkos is a freelance writer and former personal finance reporter for Yahoo Finance.
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