Key takeaways
- Store credit cards may be tempting, but they have their limitations, which include acceptance only at specific brands and chains.
- In addition to limited usability, store cards can come with high interest rates and low rewards opportunities.
- Pairing a store credit card with a general-purpose credit card may make sense if you do a lot of shopping at a single retailer, but want to continue earning rewards on a broader range of purchases
“Would you like to save 15 percent off today’s purchase by opening our store credit card?” We’ve probably all heard countless versions of that pitch at a retailer’s checkout counter. More than six in 10 U.S. adults — 62 percent — have applied for a retail store credit card, according to CreditCards.com. And about two-thirds of them have done so impulsively at least once.
While savings are always welcome, there can be consequences to opening store credit cards. They’re not always among the best credit cards. When do they make sense, and when should you steer clear?
What is a store credit card?
Retailers offer two types of credit cards: store credit cards and co-branded credit cards. Store credit cards — sometimes called closed-loop cards — can only be used at that particular store or chain of stores. A co-branded card, on the other hand, is an open-loop card that can be used anywhere the card network — such as Visa or Mastercard — is accepted. In this case, it may have a particular retailer’s logo on it, but it can be used widely.
Some retailers offer both. Amazon, for example, offers both a store card and the Prime Visa. The former only works at Amazon, whereas the latter can be used anywhere Visa is accepted.
How are store credit cards different from general-purpose cards?
The biggest difference between general-purpose cards — sometimes called bank cards — and store credit cards is the scope of their rewards programs. With general-purpose cards, you typically have a range of available reward types — such as cash back, travel points, miles, free or discounted merchandise, vouchers and more — that depend on the card.
With retail cards, either store cards or co-branded cards, your rewards are likely limited to the perks offered by the retailer associated with the card. In most cases, that means cash back rewards, credits to offset your statement balance or funds that can be applied toward future transactions.
Pros
- Loyalty rewards. If you love a particular retailer and buy from them all the time, using their store card may get you stronger rewards than a general rewards credit card.
- Bonus offers. Some store cards throw in such extra bonuses as special coupons, free alterations and invitation-only events.
- Easy to qualify for. Store cards can be a good choice if you need to establish a new credit history or you’re trying to rebuild your credit score.
Cons
- High APRs. Retail credit cards charge an average 28.93 percent APR, based on a September 2023 Bankrate study. This means that the costs associated with carrying a balance could easily eclipse the value of any rewards you earn.
- Potentially misleading terms. “Zero percent interest” store offers may actually be deferred interest promotions. It means that if you still hold any balance when your promotional period expires, you could incur retroactive interest based on your average daily balance back to your original purchase.
- Low credit limits. Store cards often come with low credit limits, which could lead to a high credit utilization ratio and hurt your credit score.
- Limited use. While they reward loyalty, store cards are limiting if you can use them only at that particular store or chain of stores.
The best store credit cards
Of course, the best store card for you will depend on your spending habits and lifestyle. Remember to take note of whether the card is a “closed-loop” product, meaning usable only with the brand, or an “open-loop” product, meaning it can be used anywhere credit cards are accepted. You can quickly tell the difference by looking for a Visa or Mastercard logo on the card.
Here’s our take on store cards that tend to be universally popular with consumers.
Prime Visa: Best for shopping at Amazon and Whole Foods
The Prime Visa may sound restrictive, but, surprisingly, it’s much more flexible than its name implies. For starters, there’s a ton of merchandise you can get on Amazon.com or at Whole Foods, where you’ll earn 5 percent cash back. Even if you shop at other stores, you can likely find those same items at these brands instead to take advantage of the card’s higher earning rate. In fact, you can earn 5 percent back on Chase Travel purchases.
Still, as an open-loop product, this card can be used and earn rewards at places outside of Amazon.com and Whole Foods. Purchases at restaurants, gas stations and local transit and commuting earn 2 percent back, while other general purchases earn 1 percent back.
Costco Anywhere Visa Card by Citi: Best for Costco shopping
Another open-loop card, the Costco Anywhere Visa® Card by Citi offers solid cash back rates, including 4 percent cash back on eligible gas and EV charging purchases (for the first $7,000 per year, then 1 percent); 3 percent back on restaurant and eligible travel purchases, including Costco travel; 2 percent back on all Costco and Costco.com purchases; and 1 percent back on all other purchases.
There’s no annual fee, but you must be a Costco member to get the card. And note that your cash back comes every February in the form of a reward certificate. You can redeem it at a Costco store for cash or for merchandise, but some shoppers may find the redemption process cumbersome.
Capital One Walmart Rewards Card: Best no-annual-fee grocery rewards card
The Capital One Walmart Rewards® Card® is ideal for frequent Walmart shoppers, given its 5 percent cash back at Walmart.com — including pickup and delivery fees.
Though the card’s top rewards apply to Walmart.com, it does come with a welcome bonus of 5 percent cash back in Walmart stores for the first 12 months after approval when you use the card with Walmart Pay. After that, you earn 2 percent back on in-store purchases and Walmart fuel stations, as well as on qualified restaurant and travel purchases. The card also pays out 1 percent cash back wherever Mastercard is accepted.
For these reasons, the card is especially useful if you buy groceries from Walmart often — especially if your other rewards cards exclude Walmart from its supermarket category due to merchant category codes.
Target REDcard store card: Best for shopping at Target
The 5 percent you receive back from shopping with your Target REDcard is applied as a discount on your Target purchases, either in store or on Target.com. You also earn 2 percent on eligible dining and gas purchases and 1 percent on all other purchases.
Cardmembers qualify for special benefits like free two-day shipping and an additional 30 days for returns and exchanges that can make shopping online at Target worth it.
Are store credit cards worth it?
The short answer is: sometimes. Although store credit cards can be a good deal if you spend a lot with that particular retailer, you may not want to go all-in with them. Be aware that some store cards limit your options to a specific store or chain, and these aren’t great everyday options. Closed-loop cards also tend to have especially high interest rates.
But a closed-loop store card may still be the right choice for you if you know you can pay your bill in full each month. It also helps if you have at least one other general-purpose or open-loop retail card to cover other expenses and benefit from such credit card perks as fraud protection, no foreign transaction fees, extended warranty coverage and purchase protection.
The bottom line
Store credit cards reward loyalty, so it can be tempting to sign up for a card from your favorite retailer to cash in on special rewards for spending you’re likely to do anyway. However, because niche rewards can be limited, understand their specific value — and have at least one credit card you can use more broadly.
*Information about the Costco Anywhere Visa® Card by Citi, Capital One Walmart Rewards® Card® and Target REDcard has been collected independently by Bankrate and has not been reviewed or approved by the issuer.
As a seasoned financial expert with years of experience in the credit card industry, I have closely followed the trends and intricacies of various credit card offerings. My in-depth knowledge comes from a combination of academic background, professional experience, and continuous research to stay updated on the latest developments in the field. I've been actively engaged in advising individuals on credit management and financial decision-making.
Now, let's delve into the concepts discussed in the article:
Store Credit Cards Overview: A store credit card is a financial tool offered by retailers, commonly categorized as "closed-loop cards." These cards can only be used at a specific store or chain, limiting their acceptance compared to general-purpose or "open-loop" credit cards, which carry major card network logos like Visa or Mastercard.
Differences from General-Purpose Cards: The primary distinction between store credit cards and general-purpose cards lies in the scope of their rewards programs. General-purpose cards offer a variety of rewards, such as cash back, travel points, and more, depending on the card. In contrast, store cards, both store-specific and co-branded, often limit rewards to perks offered by the associated retailer, such as cash back, statement credits, or future transaction funds.
Pros and Cons of Store Credit Cards: Pros:
- Loyalty Rewards: Store cards can provide stronger rewards if you frequently shop at a particular retailer.
- Bonus Offers: Some store cards offer extra bonuses like special coupons, free alterations, and invitation-only events.
- Easy Qualification: Store cards can be a suitable option for establishing a new credit history or rebuilding credit.
Cons:
- High APRs: Store credit cards tend to have higher average annual percentage rates (APRs), potentially overshadowing the value of rewards.
- Potentially Misleading Terms: Zero percent interest offers may be deferred interest promotions, leading to retroactive interest charges.
- Low Credit Limits: Store cards often come with low credit limits, impacting credit utilization ratios and potentially hurting credit scores.
- Limited Use: While rewarding loyalty, store cards are restrictive as they can only be used at specific stores or chains.
Best Store Credit Cards:
- Prime Visa: Ideal for Amazon and Whole Foods shopping, offering flexibility and rewards beyond the brand.
- Costco Anywhere Visa Card by Citi: Suited for Costco shopping, providing competitive cash back rates on various categories.
- Capital One Walmart Rewards Card: A no-annual-fee option for frequent Walmart shoppers, offering significant cash back rewards.
- Target REDcard Store Card: Best for Target shopping, providing discounts on purchases and additional benefits for cardmembers.
Are Store Credit Cards Worth It? The decision to opt for a store credit card depends on individual spending habits and preferences. While they can be advantageous for loyal customers, it's essential to consider limitations, high APRs, and potential impact on credit scores. Using a mix of store cards and general-purpose cards might be a strategic approach to maximize benefits.
In conclusion, store credit cards can be a valuable addition to one's financial toolkit, but careful consideration of individual circ*mstances and financial goals is crucial in determining their worth.
