Are store credit cards a good idea?

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“Would you like to save 15 percent off today’s purchase by opening our store credit card?” We’ve probably all heard countless versions of that pitch at a retailer’s checkout counter. More than 6 in 10 U.S. adults (62 percent) have applied for a retail credit card, according to our sister site CreditCards.com. And about two-thirds of them have done so impulsively at least once.

While savings are always welcome, there can be consequences to opening store credit cards. They’re not always among the best credit cards. When do they make sense and when should you steer clear?

What is a store credit card?

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 (e.g., Visa or Mastercard) can be accepted. It has a particular retailer’s logo on it, but it can be used widely.

Some retailers offer both. Amazon.com, for example, has a store card and the Amazon Prime Rewards Visa Signature Card. The former only works at Amazon.com, whereas the latter can be used anywhere Visa is accepted.

How are they different from general-purpose cards?

General-purpose cards—sometimes known as bank cards—have the broadest rewards programs. Depending on the card, you might be able to redeem for cash back, travel, gift cards, merchandise or something else.

If you have a store card or a co-branded card, your rewards will probably focus on perks offered by that individual retailer. These tend to focus on cash back, either as statement credits or as funds you can apply to offset future purchases.

Pros of store credit cards

Store cards work best for loyal shoppers. If you love a particular retailer and buy from them all the time, using their credit card may get you better rewards than any other payment method.

Some store cards throw in extra bonuses such as special coupons, free alterations and invitation-only events.

And store cards tend to be among the easiest credit cards to qualify for, making them logical starting points for people looking to establish a credit history from scratch or to rebuild their credit score after a prior misstep.

Cons of store credit cards

If you ever carry a balance, a store card probably isn’t the best choice for you. Store cards charge an average APR of 25.90 percent, according to the aforementioned CreditCards.com study, which was conducted in September 2020. That compares with 23.39 percent for co-branded retail cards and 19.69 percent for general-purpose cards. (For all three card types, CreditCards.com averaged the midpoint of each card’s APR range.) Of course, if you pay your bill in full before it’s due, you can avoid interest.

Be especially wary of deferred interest promotions. Many store cards dangle incentives such as no interest for 12 months. If it’s phrased as a deferred interest offer, that means if you have any remaining balance when the term runs out, you’ll be charged retroactive interest on your average daily balance all the way back to the beginning of the period.

It’s a common—and sneaky—tactic employed by many store cards. When a general-purpose card offers a 0 percent interest promotion, it’s rarely deferred interest. Those typically only charge interest moving forward on whatever is left after the term expires.

It’s important to consider your credit score, too. Each hard inquiry triggered by a credit application trims a few points off your credit score. Too many of these in a short span can make you look like a risky borrower. Store cards often have low credit limits, too, which can lead to a high credit utilization ratio and hurt your credit score.

And remember that store cards are limiting. They can only be used at that particular store or chain of stores.

A few good examples of store cards

If you spend a lot at Macy’s, their Macy’s Credit Card is attractive. It gives new cardholders 20 percent off their purchases for the first two days after opening the card (up to $100 in savings). Year-round, all cardholders earn at least 2 percent back in rewards on each Macy’s purchase. They’re also eligible for 25 percent off coupons, Star Money Bonus Days, a birthday surprise and other freebies. If you spend at least $500 annually on your Macy’s card, you earn 3 percent back on those purchases and they throw in free shipping. If you spend at least $1,200 per year, you earn 5 percent on Macy’s purchases.

Ann Taylor’s ALL Rewards Credit Card is another good choice if you’re loyal to that brand. Cardholders earn 5 points for every dollar they spend online or in-store at Ann Taylor, LOFT, Ann Taylor Factory Stores and LOFT Outlets. Every 500 points can be exchanged for a $5 reward. That’s 5 percent cash back, which is probably more than you would earn on those purchases with any other card. Ann Taylor cardholders also get free shipping when they spend $75 or more, an extra 15 percent off on the first Tuesday of every month and an introductory 15 percent discount when they open and immediately use their card.

Other store cards that offer 5 percent cash back include Target, Amazon.com, Lowe’s, Wayfair and Best Buy. Keep in mind that many of these retailers also offer co-branded cards, which offer more flexibility and sometimes extend bonus rewards on other categories such as dining and gas.

Why you should get a general-purpose card instead

You definitely shouldn’t go all-in with store credit cards. It’s important to have at least one credit card that can be used broadly. Credit cards offer many advantages over debit cards and cash, including superior rewards programsfraud protectionno foreign transaction feesextended warranty coverage and purchase protection.

A store credit card can be a good deal if you spend a lot with that particular retailer, but since it can’t be used elsewhere, you should supplement with at least one general-purpose or co-branded card.

Have a question about credit cards? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.

All information about the Macy’s Credit Card, Amazon Prime Rewards Visa Signature Card, Ann Taylor’s ALL Rewards Credit Card has been collected independently by Bankrate.com and has not been reviewed or approved by the issuer.