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by Matt Frankel, CFP® | Updated July 21, 2021 - First published on Nov. 1, 2018
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Store credit cards have advantages and disadvantages -- here are some of the benefits.
To be perfectly clear, store credit cards are not superior to traditional credit cards in many ways. For example, the average store credit card has an interest rate that’s roughly 10 percentage points higher than the average traditional credit card, and store credit card financing offers can be complicated and dangerous in many cases.
On the other hand, there are some advantages store credit cards often have over traditional credit cards, and they generally have to do with the value they offer consumers who pay their bills before any interest accrues. Here are three reasons your favorite store’s credit card could be a good idea, as well as some of the drawbacks you should consider before applying.
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Store credit cards often have financing deals that traditional credit cards (not branded with a particular retailer and on a major payment network) simply cannot match. For example, my Best Buy and Home Depot store credit cards are currently offering no-interest financing for up to 24 months on purchases above a certain dollar amount. The Rooms to Go store credit card offers up to 60 months of no-interest financing, which my wife and I used when we furnished our home a few years ago.
Additionally, many of these offers are available at any time, not just when you first open the account. Meanwhile, the absolute best introductory 0% APR offer from a non-store credit card on the market right now is for an introductory period of 21 months, and most are in the 12-18 month range.
However, there’s one important caveat you need to be aware of. Unlike 0% APR credit cards, store credit cards generally offer a type of financing called “deferred interest.” Under deferred interest financing, the interest on your purchases is still accruing. If your balance reaches zero before the promotional period ends, you won’t have to pay any interest. On the other hand, if you owe even one dollar of the original purchase amount after the introductory period ends, you’ll have to pay all of the interest that would have been charged to the account from day one -- and store cards tend to have pretty high interest rates.
In addition to the possibility of great financing offers, many store cards offer excellent reward and discount programs that are as good as or better than anything you can find with a traditional credit card.
For example, the Lowe’s and Target store credit cards offer unlimited 5% discounts on in-store and online purchases. The Best Buy store credit card offers a 5% reward rate, with a 6% rate available to customers who meet a certain spending threshold.
In contrast, the best cash-back credit cards offer up to 5% rewards rates, but only in rotating categories. So, if you’re a frequent shopper at a certain store, and that store’s credit card has a lucrative rewards program, it could be a good reason to apply for the card.
With some store credit cards, the primary perk is not a reward points program, but cardmember-exclusive discounts and offers.
Just to name a couple of examples, the main perk of the Kohl’s Charge credit card is a monthly shopping discount event, which typically gives the cardmember 15%-30% off of their purchase during a certain period of time. And, the Macy’s credit card gives users Star Passes, which give them 25% off on any day of their choosing, in addition to other cardmember-exclusive savings events. If you shop at these stores regularly, these discounts could easily save you hundreds of dollars annually.
To be clear, store credit cards aren’t great products for everyone. There are several key drawbacks to store credit cards, such as the dangerous deferred-interest financing I discussed earlier.
In addition, store credit cards tend to have extremely high interest rates. While the average credit card APR in the United States is currently about 17%, store credit cards typically have interest rates in the 25%-30% range, even for customers with strong credit scores.
In many ways, store credit cards are not great ways to finance purchases, especially if you carry a balance or don’t think you’ll be able to pay your bill in full before a promotional financing offer runs out. However, many store credit cards have perks, offers, rewards, and discounts that traditional credit cards simply cannot match, so for value-conscious consumers who pay their bills in full, they could certainly be worth a look.
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