If you shop at major retail stores, you’ve probably been offered a store credit card at some point. The sales pitch for these cards usually happens at the register or online checkout, and it includes a promise of an instant discount on your purchase, with big savings in the future.
Unfortunately, most store credit cards don’t live up to the promise. Are these cards bad for your credit? They don’t necessarily hurt your credit more than any other credit card, but what you do with the card can end up having a negative impact on your credit scores and your wallet. Especially if you use the cards as they’re intended — to spend lots of money on retail shopping.
What’s a retail store credit card?
Store credit cards, or retail cards, are credit cards issued by specific retailers. They generally work the same way as regular cards, except that they come in two varieties:
- Closed loop: These cards, which can only be used to make purchases from one retailer, are by far the most common type of store card. In 2024, the most popular closed loop cards are from Best Buy, Lowe’s and Home Depot.
- Open loop: Open-loop cards can be used for purchases outside of the retail chain. The most popular open-loop cards in 2024 are from Klarna and Affirm.
How store credit cards can hurt your credit
The riskiest thing about having a store credit card is the temptation to overspend. Store cards incentivize you to return to the store more often than you would otherwise, meaning you could end up with more credit card debt.
While these cards usually give you benefits, like access to sales, discounts and free shipping, you have to spend money to get each one of those benefits. In other words, using a store card still costs you money.
Another problem is the pressure to apply and accept the card at checkout. In other words, you’re being encouraged to make an impulse decision. Plus, you’re not likely to review the card’s terms and conditions before accepting the offer. That means you’re agreeing to interest rates and fees without even knowing what they are.
How do store credit cards compare to regular cards?
Like regular credit cards, store credit cards have spending limits. You can spend up to the limit and pay off your balance an endless number of times. But if you fall behind on payments with either type of card, you can do serious damage to your credit scores. You’ll also pay major interest charges if you carry a balance from one month to the next.
Aside from that, these two types of cards are very different.
Approval
It’s easier to get approved for store credit cards, even if your credit scores are low. That’s because these cards lack the features people usually look for in their credit cards. Plus, they have high rates and fees, so you’ll pay big penalties if you miss a payment.
Low Credit Limits
Retail credit cards have low credit limits. On one hand, it can be good to put a low cap on how much you spend. On the other hand, you can easily max out your card and increase your “credit utilization.” Credit utilization makes up a big part of your credit scores, and you improve your scores in this area by having high credit limits and low balances.
Ultra-High Interest Rates
Interest rates on regular credit cards are very high, but they’re even higher on store cards. You can compare the rates from one card to the next by looking at their Annual Percentage Rates (APRs), which is a number that represents the interest and fees on a card.
In 2024, the average credit card has an APR of 21.59%, but Lowe’s, Best Buy and Sephora credit cards all have APR above 31%, and store card rates can get even higher if you fall behind on payments. So if you do take out a store credit card, it’s crucial that you pay off the full balance each month in order to avoid massive charges.
Limited use
Another major con to store credit cards is that most of them can only be used at one retailer. There are a few exceptions, but you typically can’t use the card unless you visit a store location for the retail company, or make purchases through their website.
Limited Rewards
One of the big selling points for store cards is the rewards. You’ve probably heard pitches like, “Save 20 percent on your purchase if you open a card today.” But saving 20% on a single purchase isn’t usually a steal. Plus, that one-time discount can leave you in a long-term relationship with a card you don’t want.
Credit card rewards are very overrated, and are not a good choice for people who carry debt from month-to-month. If you really want a card that gives you incentives, take the time to carefully choose one. The best choice is a card that gives you benefits for purchases you would already make, like groceries or utility bills.
Be cautious with store credit cards
As you can see, store credit cards don’t necessarily hurt your credit scores, but there’s a big potential for damage if you’re not careful. Before you take on any credit card, you should review all of the terms and consider your spending habits. If you struggle with overspending, a retail card could get you in trouble, fast.
If you have questions about how to choose a credit card, improve your credit or manage debt,
NFCC-certified credit counselors are here to help.
Written by Courtney Nagle
Edited by Sarah Brady
Frequently Asked Questions (FAQ)
Is it bad to have a department store credit card?
Department store credit cards are more risky than regular cards. It’s not necessarily bad to have one, but these cards can tempt you to spend more on retail items and the interest rates are ultra-high.
Can I get a store credit card with bad credit?
You can qualify for some store credit cards with bad credit or even no credit. Just note that if you use the card as intended — to spend lots of money on retail items — you could end up with worse credit scores than before. A better way to build credit is with a secured credit card, or by having a loved one with good credit add you to one of their card accounts as an authorized user.