3 Reasons You're Going to Regret Getting a Store Credit Card

If you shop frequently at retail chains, chances are you've heard the credit card pitch. Whether recited from a store clerk or prompted on a payment screen, these pitches typically offer you an immediate discount on your purchase, like 20% off, if you apply and get accepted for a store credit card.

It can be an enticing offer -- who doesn't want to save money? -- but if done impulsively you could easily regret opening that new credit card account. With that in mind, here are some downsides to store credit cards that retailers don't like to talk about.

1. Many store credit cards are closed-loop

Store credit cards can only be used at one store and any brands associated with it. For example, if you got the Bealls Credit Card, you could use it at Bealls, Bealls Florida, Homecentric, and Rugged Earth Outfitters. You couldn't, however, use it at other department stores, like Macy's or Kohl's.

That said, some stores have open-loop versions of their credit cards that can be used on major credit card networks, like Visa and Mastercard. For example, T.J. Maxx has two credit cards: the TJX Rewards® Credit Card, a store-only card, and TJX Rewards® Platinum Mastercard®, a card that can be used wherever Mastercard is accepted. Both cards earn 5% back in T.J. Maxx rewards, and the Mastercard earns 1% back everywhere else.

When a store offers two versions of its rewards credit card, you often can't choose which you're applying for. Instead, the store will look at your credit report and decide which it will offer you (typically, higher scores qualify for the open-loop cards). This can be frustrating, especially if you don't want a closed-loop card.

2. Rewards have no "real world" value

Whether a card is open- or closed-loop, its rewards are usually only redeemable at one store. In other words, these cards earn store rewards that have no cash value.

In contrast, other credit cards will let you redeem points or rewards for cash or cash-like equivalents. Many of these cards let you deposit cash back into your checking account, or apply it as a statement credit against your balance. Some, like Discover credit cards, will add value to your rewards if you redeem them for gift cards, while others have more value when redeemed for travel.

What's more, the rewards on store credit cards are usually exchangeable for fixed discounts, like 100 points for $3 off, and can't be redeemed in fractions, like $3.46 off your purchase. And yes -- you may forfeit rewards if you don't use the full amount. For instance, if you have a $25 reward, but your transaction comes to $22, you would forfeit $3 if you chose to use it. This inflexible rewards system makes many store credit cards inconvenient to use over the long term, especially if your rewards also have an expiration date.

3. You'll authorize a hard inquiry

When you apply for a store credit card, the card's issuer will run a hard check on your credit. This will result in a temporary ding to your credit score, usually a five to 10 point reduction. It's not permanent, but if you're preserving a high score for another financial matter, like applying for a mortgage, you might want to avoid applying for a new credit card altogether.

Take a look at your card's terms and conditions before applying

Store credit cards like to appear as if they're a simple way to save money. But these cards often have inflexible rewards, complicated rules, and unforgiving interest rates. If you shop frequently at the store and would rather earn store rewards than cash back, these cards might suit you. But try to avoid applying for them impulsively, or at least take a look at the fine print before you do. They may be a good fit, but you can avoid regretting your decision just by knowing what other cards are out there and how the store card stacks up.