The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for . The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Terms apply to the offers listed on this page. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
This post was originally published on Aug. 25, 2021. It was updated to reflect current credit card details.
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 that she’d received a one-time discount and a pouch of free products. 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 the 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.
But is a store card right for you? Next time you’re at checkout and a salesperson is pitching you a store card, ask yourself the following questions before you 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 Sephora 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. Doing so could bring significant discounts or attractive earning rates, as well as other benefits associated with the store.
However, it’s worth noting that, even if you frequently shop at a store, its store credit card still might not be the best option for you. See if you can find a general rewards credit card that could offer you the same rewards 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 offer a better deal?
For example, as a bookworm who spends at bookstores almost compulsively, I’ve been looking for a credit card that would reward me for book purchases. For a while, I’ve 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. But when I was doing my research, I found the Affinity Cash Rewards Visa® Signature*, a general credit card from Affinity Credit Union that earns 5 percent cash back at bookstores and Amazon, on top of competitive rewards in a few other categories. I’m now a happy cardmember.
However, 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 earning rewards. Luckily, they both have their own credit card products to offer.
With the Target RedCard™*, you can get a 5 percent discount on all eligible Target purchases. The Capital One Walmart Rewards® Mastercard®* offers 5 percent cash back at Walmart.com (including delivery and pickup) and 2 percent cash back at Walmart stores and fuel stations, among other rewards. Additionally, as a welcome offer, you’ll earn 5 percent cash back in Walmart stores for the first 12 months if you use the card with Walmart Pay.
These two cards offer rather appealing ongoing rewards for superstore lovers, especially considering superstore rewards are uncommon with general credit cards.
Is it a closed-loop or open-loop card?
You’ve done your research and you’ve concluded that a retail credit card is the best choice for earning rewards at your favorite store. But before you apply, there’s another aspect to consider: Is this card a closed-loop card or an open-loop card? 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 Target™ Mastercard®*). The Capital One Walmart Rewards card, however, is an open-loop card, which means you can use it anywhere Mastercard is accepted. You’ll even earn rewards on other types of purchases, including 2 percent cash back at restaurants and on travel and 1 percent back on everything else.
However, some stores offer multiple credit cards, including both open-loop and closed-loop versions. For example, Amazon offers two open-loop cards, which are issued by Chase: the Amazon Visa* and the Prime Visa. Amazon also has two closed-loop options: the Amazon Store Card* and a version for Amazon Prime members, the Amazon Prime Store Card*. These cards are issued by Synchrony Bank, a popular issuer of store cards, and they 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 — especially if your credit leaves much to be desired.
What’s your credit score?
Retail credit cards tend to be more lenient when it comes to credit score requirements.
However, as you may 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 stricter with approvals, so it may be harder to qualify for one of its Amazon cards. Plus, there’s the unofficial 5/24 rule to consider, which means 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 good option for those who are new to credit or have lower scores.
Additionally, note that, if you don’t qualify for the store card you’ve applied for, some issuers may consider you for an alternate version of the card with lower score requirements.
Take the Capital One Walmart Rewards card: It recommends that applicants have a fair to good credit score, but if you don’t qualify for the card, you may be automatically considered for the closed-loop Walmart Rewards® Card*.
Do you need to build credit?
If your credit score could use some work, a retail credit card can help you build your credit just like any other type of credit card. But make sure you use the card responsibly. For instance, you should keep your credit utilization under 30 percent and make all your bill payments on time and in full.
Remember that a store credit card is rarely the only option for building credit. There are also general rewards credit cards with more relaxed credit score requirements, including credit cards for no credit history, fair credit and bad credit.
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 for both your credit and your wallet.
However, if you’re planning a large purchase that will take a few months to pay off or if you simply know that you have a habit of carrying a balance, choosing a retail card with a high interest rate is not the best idea.
The 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.
So, 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 for your situation — just as you should do before applying for any card.
*All information about the Sephora Visa® Credit Card, Barnes & Noble Mastercard®, Affinity Cash Rewards Visa® Signature, Target RedCard™, Capital One Walmart Rewards® Mastercard®, Target™ Mastercard®, Amazon Visa, Amazon Store Card, Amazon Secured Card and Walmart Rewards® Card has been collected independently by Bankrate and has not been reviewed or approved by the issuer.