5 Reasons Store Credit Cards Are (Usually) a Horrible Deal

As we head into the holiday shopping rush, you'll notice retailers turning up the heat with sexy new credit card offers.

"Sign up today and get 20% off your purchase!"

"Instant savings at the register!"

I fell for this years ago with a Macy's store credit card. I got like 40% off my entire order when I signed up for the card while checking out. Turned out to be a major mistake on my part.

Here are five solid reasons why you should probably stay away from store credit cards.

1. Interest rates 150%+ higher than usual

Right now the average APR on regular credit cards in the U.S. is over 21%. I think we can agree that this is already ridiculously high.

But many store credit cards laugh in the face of that stat and hit you with 28%, 35%, or even higher APR!

If you don't pay your balance in full every month, that "sweet" 20% off you got as a sign-up bonus can vanish. One month of interest might cost you more than the original discount.

If there's even a small chance you'll carry a balance, don't mess with a store card. Pick a 0% intro APR card instead and take advantage of interest-free breathing room.

2. The rewards are weak, too store-specific

Store cards are designed to make you buy more and more at that specific store. The welcome offer might be a good deal, but ongoing discounts aren't that impressive.

You might earn 5% back… but only when shopping at that one retailer. And instead of true cash back, the "rewards" often come in the form of store credit. It's basically a coupon disguised as a perk.

If you're not constantly shopping at that store, the value dries up fast. Compare that to a general rewards card that gives you points or cash back on everything you buy, everywhere.

3. Low limits can hurt your credit score

This one sneaks up on most people… Many store cards come with tiny credit limits, like $300 or $500.

It only takes a quick shopping trip -- say $200 -- and suddenly you're using 40% to 60% of your available credit on that card. That's a really high utilization ratio, which can hurt your credit score.

The ideal usage is under 30% of your total available credit (actually I recommend under 10% if you can). But with low-limit cards, it's really hard to stay under that.

4. You can't use them everywhere

Some store cards are "closed-loop," meaning they only work at the specific retailer. Others are "open-loop" and carry a Visa or Mastercard logo.

Even if your store card works outside the specific brand, it usually earns zilch. Spend $2,000 on general holiday shopping and you get nothing. But if you had a simple 2% flat-rate card, that's an easy $40 cash back in your pocket.

5. They're a pain to track and manage

This was my biggest downfall with my Macy's card.

I thought there was no harm in keeping it active and letting it sit in a drawer. But, somehow my Macy's online account got hacked and someone went on a shopping spree with my saved card info. It was a nightmare to get sorted out.

Inactive store cards are prime targets for fraud. Or worse, you might forget about or miss a payment entirely, wrecking your credit score over something you didn't even realize was still active.

More cards = more complexity. Unless you're a spreadsheet ninja, adding a bunch of niche cards to your wallet is just asking for trouble.

The rare exceptions I do recommend

To be fair, not all store cards are horrible.

I actually have a store card myself. It's Amazon's Prime Visa -- and I got approved with a $30,000 credit limit.

Since I shop there regularly (and you can buy almost anything on Amazon these days) the ongoing discount makes sense for me.

Other massive retailers like Target, Walmart, and Costco all offer branded credit cards. These can be a good deal for loyal customers.

Just remember -- these cards only work out because they match your normal spending. That's the bar any good credit card should clear.

Looking to earn more on everyday spending? These credit cards offer top cash back on gas and groceries -- and some come with big welcome bonuses, too!