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When you pull out your credit card to make a purchase, you may be offered an incentive to apply for a store card. Many people assume that these cards are the same, but there is a difference. Let’s discuss the differences between store cards and credit cards and help you decide whether or not you should apply for a store card.
Store Cards vs. Credit Cards
Store cards are credit cards that typically can only be used at specific stores. Retailers partner with banks to offer these revolving lines of credit to customers. Store cards encourage shoppers to purchase items on credit today and pay them off over time. The advantage for the store is that you’re locked into their ecosystem; the advantage for you is that you might receive offers that are exclusive to cardholders.
The main difference between a store card and a credit card is that where a store card can only be used at a specific store, a credit card can be used anywhere that credit cards are accepted.
Where You Can Use Store Cards
There are two types of store cards—closed-loop and open-loop. Closed-loop store cards can only be used at specific retailers or retail chain families. Open-loop store cards have a Visa, Mastercard, or American Express logo and can be used as a traditional credit card to make purchases anywhere credit cards are accepted.
Store Cards Still Charge Interest
If you carry a balance on your store card, you will be charged interest by the bank just like with a credit card. Not only that, store interest cards are typically on the high end. Just like with a credit card, you should try to pay off your balances in full each month to avoid paying interest.
It May Be Easier to Get a Store Card
Retailers often make it easy to apply for a store card compared to getting a credit card. Cashiers often encourage shoppers to apply for a store card at checkout with a promotion on their purchase. For example, you may receive a discount or special financing terms on your purchase.
In many cases, you can apply by providing your identification to the cashier and entering your Social Security Number into the keypad. The application decision is usually instantaneous. You can also apply online at the retailer’s website or through the website of the bank that issues the store card.
Store cards are generally easier to get approved for than a traditional credit card because they don’t require credit scores as high as most major credit cards. As a result, some people apply for store cards to start building their credit.
Store Cards Work Like a Credit Card, With One Exception
Store credit cards are revolving lines of credit, just like credit cards. You have a specific credit limit and the ability to charge purchases against that limit. As you pay down your balance, your available credit increases and can charge additional purchases up to your credit limit.
The only difference: While a credit card can be used anywhere, a store card can usually only be used at the specific store.
Store Cards Can Hurt Your Credit
Like a standard credit card, failure to manage your store card properly can hurt your credit. You should keep your balance low relative to your credit limit (also known as utilization) and make sure that you pay on time every month. Protect your store card number just like you would a credit card number to ensure that unauthorized charges are not made.
By following these steps, a store card can help build your credit. If you miss payments or have high utilization, a store card can leave you much worse off than where you started.
Pros and Cons of Store Cards
Although store cards and credit cards are similar, they are not the same. Each type of card has pros and cons that make them appropriate for specific situations.
Advantages of Store Cards
There are several advantages that store cards offer that make them a better choice for some consumers.
- Easier to get approved than many credit cards
- Can often apply and get approved during a transaction
- Receive a discount or other promotion when you are approved
- Earn rewards that can be used at that store
- Pairs with the store’s loyalty program
- Can be a tool for building credit with responsible use
- Customers receive discounts, special financing and other exclusive promotions
- Most have no annual fee
Limitations of Store Cards
Even though there are advantages to store cards, there are some reasons why a store card is worse for consumers than a credit card.
- Most store cards can only be used at specific retailers
- Store cards tend to have lower credit limits which may result in higher utilization
- Average interest rates are higher on store cards vs. credit cards
- Deferred interest promotions can result in unpaid interest if not paid off in time
- Rewards earned are limited to the retailer
- Store card customer service is provided by the bank, not the store
Why a Credit Card Might be a Better Option
Although there are several advantages to having a store card, a credit card tends to be the better option for daily purchases. Below are some popular benefits that may be offered by a traditional credit card. Review your card application to make sure you’re getting the benefits you are looking for.
- Those with good credit may benefit from higher lines of credit vs. a store card
- Lower interest rates on average
- Earn rewards or cash back on your purchases
- Bonus rewards when spending on eligible categories
- Generous welcome bonuses
- Ability to redeem rewards for higher value, like premium flights or five-star hotels
- Opportunity to pool rewards with household members
- Additional benefits such as hotel night awards, waived checked bag fees, and airport lounge access
- Protection on purchases for returns, theft, or damage
- Extended warranties on eligible items
Bottom Line
Store cards and credit cards are very similar at first glance. Each one can be used to make purchases to be paid off at a later date. Store cards can be easier to apply for and get approved for while providing exclusive discounts and promotions at participating retailers. However, most store cards can only be used at those retailers and often charge higher interest rates.
For some people, it makes sense to have both store cards for their favorite retailers and rewards credit cards for other purchases. This way you can have the best of both worlds—discounts and promotions at the retailer and a traditional rewards credit card for all other purchases. Either way you go, try not to keep a balance because any rewards you earn will be outweighed by the interest you have to pay.
