Your Favorite Store Offers a Credit Card. Is It Worth Applying?

Anyone who's shopped at a big box store or retail chain has faced the option of applying for a retail credit card, and about 40 percent of Americans take advantage of these offers.1 Store credit cards carry great store-specific perks - often in the form of generous discounts.

If one of your favorite brands offers a store credit card, is it worth applying just for a discount at one of your most frequented stores? Before you make the decision to apply, make sure you know exactly what you’re applying for.

How Do They Work?

While the specifics vary from store-to-store, a retail credit card generally functions under the same premise as a standard credit card. You use it to make purchases, and you later pay off those purchases. The main draw is that retail cards offer discounts and/or loyalty perks for the store they’re associated with.

The credit card’s function differs depending on the store. Some stores offer “closed-loop” credit cards, which are only usable at that store. Others offer “co-branded” cards through Visa, Chase, Mastercard or others that can be used at other locations. Typically, retail credit cards carry higher interest rates and lower credit limits than regular credit cards, but they are easier to qualify for.

Pros of Store Credit Cards

Store credit cards have some exclusive advantages.

Pro #1: Easy to Qualify For

Easier qualification makes retail credit cards ideal for those who may not qualify for standard credit cards.

Pro #2: Helps Build Credit

Using a retail card responsibly can help you build better credit, especially if you have poor credit and cannot qualify for other cards.

Pro #3: Perks and Discounts

If you apply for a retail card from a brand you shop often, the discounts and perks can save you a significant amount of money over time. They essentially reward brand loyalty.

Cons of Store Credit Cards

However, store credit cards are more than just a discount, and they’re not without their disadvantages.

Con #1: High-Interest Rates and Deferred Interest Charges

Retail cards hold relatively high-interest rates. If you can’t stay on top of your payments, you may end up losing more money than you save. In addition, deferred interest charges can charge you more in interest if you don’t pay off your card by the end of the promotion period.2

Con #2: Low Credit Limits

It’s suggested not to spend more than 30 percent of your credit limit.3 With a lower credit limit than regular cards, going over that suggested percentage is easier to do with a store credit card. This may cause you to either shop at the store without your card and lose the discounts or hurt your credit score.

Con #3: Higher Risk of Overspending

Retailers do a great job of marketing their sales. If you’re a historical overspender, a store credit card may not be right for you. It’s easy to focus more on a discount or sale than the actual price of an item.

The Key Is Effective Use

If you do decide to apply for a store credit card, be conscious of its potential downside. Pay on time and in full to avoid high interest rates, and monitor how much of your credit limit you spend so you don’t hurt your credit score.

Store credit cards boast enticing deals, but it’s important to consider the whole picture before getting one. While they offer perks and can serve as an easy way to build credit, effective use requires responsibility and close monitoring. Do your research to determine if a retail card will actually save you as much money as it promotes.

Click here to schedule a call with a BWC advisor today.

https://www.fool.com/the-ascent/credit-cards/articles/study-why-swipe-american-credit-card-preferences-and-habits-by-generation/
https://www.consumerfinance.gov/about-us/blog/six-tips-when-offered-retail-store-credit-card/
https://www.consumerfinance.gov/ask-cfpb/how-do-i-get-and-keep-a-good-credit-score-en-318/

The information presented in this article is obtained from or based on sources believed to be reliable. BWC does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes or from the use of information presented in this article. The article does not purport to contain all the information that an interested party may desire and, in fact, provides only a limited view. Information presented does not constitute an offer to sell or a solicitation of an offer to buy any security.

All investments involve risk, including loss of principal invested. Past Performance does not guarantee future performance. Individual client accounts and performance vary. BWC does not provide tax advice.

About Beirne Wealth Consulting Services, LLC – www.beirnewealth.com

Beirne Wealth Consulting Services, LLC (“BWC”) is a privately owned, SEC Registered Investment Advisor with offices in Connecticut and Pennsylvania. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372.

*Registration does not imply a level of skill or training.