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Questions to ask yourself when shopping for a retail credit card

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A couple of months ago, my friend and I went shopping and found ourselves at a Sephora store. After some browsing, she went to check out and came back with the fresh Sephora Visa Credit Card.

“Oh no, why did you do that?” was my reaction.

My friend explained her decision by a one-time discount and a pouch of free products she’d received. She couldn’t understand my exasperation.

Like most credit card nerds, I frown upon store credit cards. The APRs are high, the rewards are limited and credit limits are low. But I can also admit that people’s credit situations and spending patterns are unique, and in some cases, a store credit card can make sense.

Does it make sense for you? Next time you’re at checkout and the salesperson is pitching you a store card, ask yourself the following questions before you succumb and sign up.

How often do you shop at the store?

If my friend told me she signed up for the Sephora credit card because she shops there all the time and wants 4 percent back on her purchases, I might have understood.

If you’re a loyal customer at a store chain, it may make sense for you to sign up for that chain’s credit card. This may bring significant discounts or attractive earning rates, as well as other benefits associated with the store.

However, even if you do shop frequently at the same store, its credit card might not still be the best option for you. See if you can find a general rewards credit card that could earn you the same rate at that store and beyond.

Could a general credit card serve the same purpose?

This leads us to the next question—could a general credit card be a better deal?

For example, as a bookworm who spends at bookstores almost compulsively, I recently went looking for a credit card that would reward me for book purchases. For a while, I’d been considering the Barnes & Noble Mastercard®, which earns 5 percent back on Barnes & Noble purchases.

I love Barnes & Noble, and that’s not a bad offer at all. Still, when I was doing my research, I found a general credit card that earns 5 percent back at any place with a bookstore merchant code and at Amazon, on top of competitive rewards in a few other categories. It’s the Affinity Cash Rewards Visa® Signature from the Affinity Credit Union, of which I’m now a happy member.

On the other hand, such perfect alternatives aren’t always possible.

For instance, say you do all your shopping at a superstore like Target or Walmart. Many credit cards specifically exclude these stores when it comes to rewards. Luckily, they have their own credit card products to offer.

With the Target REDCard, you can get a 5 percent discount on all eligible Target purchases, and the Capital One Walmart Rewards® Mastercard® earns 5 percent back at, including delivery and pickup, and 2 percent back in Walmart stores. Additionally, you’ll earn 5 percent back in Walmart stores for the first 12 months if you use the card with Walmart Pay.

These are rather appealing ongoing rewards for superstore lovers, especially considering you’re not likely to find them with general credit cards.

Is it a closed-loop or open-loop card?

You’ve done your research and come to the conclusion that a retail credit card is the best choice for earning rewards at your favorite stores.

Before you apply, there’s another nuance to consider: Is this card closed-loop or open-loop?

To put it simply, you can only use closed-loop credit cards at the store they’re associated with, while open-loop credit cards can be used anywhere – just like general credit cards.

For example, the Target RedCard is a good deal for Target lovers, but it can only be used for purchases at Target (unless you’re targeted for the open-loop version). The Capital One Walmart Rewards card, on the other hand, is an open-loop card, which you can use anywhere Mastercard is accepted. You’ll even earn rewards from other merchants, including 2 percent back at restaurants and on travel and 1 percent back on everything else.

Some stores offer multiple credit cards, including both open-loop and closed-loop versions. For example, Amazon offers two open-loop co-branded cards issued by Chase: the Amazon Rewards Visa Signature Card and the Amazon Prime Rewards Visa Signature Card. It has a couple of closed-loop options as well: the Store Card and the Amazon Secured Card. These two cards are issued by Synchrony Bank, a popular issuer of store cards, and can only be used on Amazon.

Without a doubt, open-loop credit cards offer much more flexibility and, in many cases, added rewards potential. They may also come with better card benefits. Still, closed-loop cards can make sense in some cases, too—especially if your credit leaves much to be desired.

What is your credit score?

Retail credit cards tend to be more lenient when it comes to credit score requirements.

However, as you might have already realized, not all retail credit cards are created equal. This applies to their credit requirements too.

For instance, Chase issues the open-loop Amazon credit cards. This issuer is known to be somewhat stingy with approvals, so it may be harder to qualify for its Amazon cards. Plus, there’s the unofficial 5/24 rule to consider—Chase may not approve you for a card if you’ve opened five or more cards in the last 24 months.

Fortunately, qualifying for the Amazon Store Card might be easier. Closed-loop retail cards generally have lower credit requirements, which makes them a valid option for those with less than perfect scores or new to credit.

Note that some issuers may consider you for an alternate version of the card with lower score requirements if you don’t qualify for the store card you’ve applied for.

Take the Walmart Rewards Card: It requires a good to excellent credit score, but if you don’t qualify, you’ll be automatically considered for the closed-loop Walmart Rewards® Card.

Before you apply for a retail credit card, it may be a good idea to check your credit score to have a better idea of what you’re likely to be approved for.

Do store credit cards build credit?

If your credit scores could use some work, there’s another reason to look into a retail credit card—it can help you grow your credit if you use it responsibly. Keep your credit utilization under 30 percent (or better, don’t ever carry a balance) and make all your payments on time, and a store credit card can grow your score just like any other type of credit card.

Remember that there are also general rewards credit cards with more relaxed credit score requirements. A store credit card is rarely the only option.

What’s the interest rate?

Store credit cards are notoriously expensive when it comes to APRs.

This might not matter as much if you pay off your card in full each month, which is the best practice both for your credit and your wallet.

However, if you’re planning a large purchase that will take a few months to pay off or simply know that you have a habit of revolving a balance, a high interest rate might not be the best idea.

Bottom line

I’m not saying a store credit card is always the worst idea. I’m only saying there’s a lot to consider before applying, even if you regularly shop at the store in question.

Next time the cashier asks you if you’d like to apply for a retail credit card, resist the pressure to say yes. If you’re interested, do your research first and make sure that the card you’re considering is the best available option in your situation—just as you should do before applying for any card.

Written by
Ana Staples
Credit Cards Reporter and Young Credit Analyst
Ana Staples is a reporter for Bankrate and an expert on all things credit basics and personal finance for the younger generation.
Edited by
Senior Editor, Credit Card Product News