It pays to know what you’re signing up for before saying yes to a store’s credit card.

3 minute read

If you love to save money while shopping, you’ve probably been tempted by a retail cashier to apply for a store credit card for a discount on your purchase. Plenty of people jump at the chance to save money on a retail purchase this way. You may also be tempted to apply for a retail credit card by promises of discounts or rewards on future purchases.

However, any savings you receive by applying for and using a retail credit card can disappear faster than a store employee when you need help if you don’t pay off the card’s balance each month.

Here are four things to know before you get a retail credit or use it on your next purchase.

1. Retail credit cards have much higher interest rates

The average credit card interest rate is 18.04% for new credit cards and 15.10% for existing accounts, according to WalletHub’s July 2021 Credit Card Landscape Report. However, the same report found the average store credit card APR is a whopping 24.14%. Some retail cards charge an even higher rate.

Let’s say you buy a new laptop or another device for $2,000 using a store’s credit card with a 25.24% APR. If you pay the balance off in 12 months, you’ll pay around $234 in interest. On the other hand, if you pay with a non-retail card with a 15.10 APR, you’ll pay $140 in interest, nearly $100 less.

That doesn’t mean it’s never smart to use a retail credit card, however. For example, if you get 10 percent off that same purchase by using the store credit card and can pay off the balance on your next statement, you’ll save $200, plus pay nothing in interest.

Find out: Why Store Credit Cards are Almost Never Worth It

2. It’s easier to qualify for a retail credit card

If your application for a major credit card was denied, your approval chances might be better with a store credit card, since store credit cards generally have looser credit requirements. If your credit is only fair, you might still get approved for a store’s retail credit card.

If you’re trying to improve your credit, try making under $50 in purchases every month that you know you can pay off right away. Then pay off the full balance on your card’s statement each month. That way, you’ll build a solid payment history that should raise your credit score over time so you can qualify for a major credit card with a lower interest rate.

Find out: Types of Credit Cards: Which Is Right for You?

3. Lower credit limits on store credit cards could hurt your credit

Store credit cards generally have lower credit limits than you could get with a major credit card. The lower credit limit itself won’t hurt your credit, but how you use the card’s limit could backfire. That’s because major credit bureaus measure your credit utilization ratio – the amount of credit you have available on all revolving credit accounts – to calculate around 35% of your credit score.

Generally, the higher your credit utilization rate is, the lower your credit score. To keep your credit utilization rate low, pay off the card’s balance each month or keep the balance close to zero.

Find out: How to Transfer Credit Card Balances

4. You can use some store credit cards like major credit cards

Many retail credit cards are “co-branded,” which means you can use them just like you would a major credit card for dining, shopping and other purchases. However, some retailers restrict use of the store card to only their stores.

Using a co-branded credit card lets you rack up more rewards points if you use the card on everyday expenses. If you shop a lot at the store associated with the card, you can save money on clothes, appliances and other purchases with earned rewards.

On the other hand, you can cancel out any rewards savings if you don’t pay off the statement balance each month and use the card responsibly. Keep your balance low or pay it off each month to save money on interest.

Find out: 8 Credit Card Offers That Could Backfire Later

Who should get a retail card?

If you’re trying to build good credit, getting a retail credit card can help raise your credit score if you make all payments on time and keep your balance low or pay it off each month.

On a large purchase like a home appliance or new furniture, applying for a retail credit card that offers a discount and an introductory 0% APR for a year or 18 months gives you a chance to pay off the balance over time without paying interest. However, if you don’t pay off the balance before the intro APR expires, you could be on the hook for deferred interest on the entire purchase.

Just like with any credit card, the key to making the most of a retail credit card is using the card responsibly and paying off the balance each month.

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About the Author

Deb Hipp

Deb Hipp

Deb Hipp is a full-time freelance writer based in Kansas City, Mo. Deb went from being unable to get approved for a credit card or loan 20 years ago to having excellent credit today and becoming a homeowner. Deb learned her lessons about money the hard way. Now she wants to share them to help you pay down debt, fix your credit and quit being broke all the time. Deb's personal finance and credit articles have been published at Credit Karma and The Huffington Post.

Published by Debt.com, LLC