by Lyle Daly | Updated July 21, 2021 - First published on Oct. 17, 2019
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Thinking about getting a store credit card? You're probably better off without it.
Since just about every big retailer has its own store credit card, odds are that you've gotten plenty of offers to apply for one of your own by now.
At first glance, a store credit card may seem like a great choice. Many will offer a discount on your first purchase, the opportunity to earn lots of rewards at that store, and possibly even 0% interest financing on expensive purchases.
But this is one situation where first impressions can be deceptive. Despite their benefits, store credit cards also have quite a few drawbacks compared to non-store-branded cards.
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Consumers are often impressed by the high rewards rates offered by store credit cards, but these rates typically only apply while you're shopping at the store that issued the card. Before you get too excited, think about how much you actually spend at the store.
Unless you're spending hundreds of dollars at the same store every month, you're better off getting a credit card with more versatile bonus categories or a card that earns a solid flat rate on all your spending.
Store credit cards are light on the extra perks that you could get through other rewards cards. Some popular credit card benefits that you're unlikely to get with store cards include:
Credit card debt is much more expensive with store credit cards, because these cards have significantly higher interest rates. A 2019 Consumer Financial Protection Bureau (CFPB) report found that the average APR for general purpose (non-store-branded) credit cards was 20.3%, whereas store credit cards had an average APR of 26.4%.
The smart strategy with credit cards is to not carry a balance at all, because then you won't be charged any interest. But if you're ever unable to pay your full credit card bill, store credit cards will cost you more money.
Interest rates aren't the only way that store credit cards cost you more. The CFPB's 2019 report also revealed that consumers with store credit cards incur more fees than those with general purpose credit cards.
At the end of 2018, fees made up 5.8% of the balances on store credit cards, whereas only 2.2% of balances on general purpose cards were fees.
With most store credit cards, you only have one way to redeem all those points that you earn -- store credit. Your card's rewards are basically another way for the store to encourage you to shop with them.
Compare that to cash-back cards or travel rewards cards. You can redeem cash back as a statement credit toward your bill and use travel rewards for free airline tickets or hotel stays. Both those types of cards can help you save money with their redemptions.
Retailers often entice customers to apply for a store card by offering a discount as a sign-up bonus. In person, a clerk will tell you that you can receive 10%, 15%, or even 20% off your purchase if you get a card. Online, you'll get a message saying that applying for a card will reduce the total cost of a purchase.
Again, this is a situation where you should compare what that store card is offering with what else is out there. Let's say you're making a $200 purchase, and a store card will get you 20% off. Your sign-up bonus is effectively $40. That may seem great at first, until you realize that there are plenty of sign-up bonuses worth $100, $200, or potentially much more, which you can get just by meeting a spending minimum.
A feature you'll see in some store credit cards is a promotional 0% interest offer for a set amount of time, such as 12 or 24 months. Consumers love 0% interest, but the problem is that these are usually deferred interest offers.
In a nutshell, deferred interest means that you need to pay off the full amount charged within the offer's timeframe. If you don't, the store can go back and charge you all the interest you would have paid from the beginning.
That's one danger of deferred interest offers. Another is that you'll buy products you don't need and can't afford just because you can finance them at 0% interest.
Store cards may have some decent perks, but they're just not versatile enough to rank among the best credit cards. If you've been thinking about getting a store credit card, make sure you compare it to some general-purpose cards first. You could very well learn that those non-store-branded cards are a better fit.
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