Published in: Credit Cards | Oct. 31, 2019

Store Card vs. Traditional Credit Card: What’s the Difference?

By:  Dana George

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Store credit cards and traditional credit cards are quite different. Here’s a pros and cons list of each. 

Credit cards are like European monarchy -- related, but different. There are traditional cards like Mastercard, Visa, American Express, and Discover. These are known as "network cards."

But on a different branch of the family tree are store credit cards like Kohl’s, Target, Lowe’s, and Macy’s cards.

A woman carrying shopping bags through a department store.

Image source: Getty Images

Like an alarming number of royal families, it can be difficult to recognize the differences between traditional credit cards and retail credit cards. (Seriously, have you ever seen a picture of King George V of England and Tsar Nicholas II of Russia? Some things are too closely related to tell apart.)

Here, we outline the similarities and differences between the two most common types of credit cards. 

Traditional credit cards

Credit cards are nothing new. In fact, the idea of using a valueless instrument (like a piece of plastic) to represent banking transactions dates back more than 5,000 years to Mesopotamians and their trading practices with the Harappans. Rather than pay with copper or another form of currency, they would present a slab of hard clay, emblazoned with a seal from both civilizations. 

Fortunately, we no longer need to carry around a slab of clay -- common network cards consist primarily of a plastic body and a magnetic stripe that weigh in under 20 grams.

The four major credit card networks are Mastercard, Visa, American Express, and Discover, and they're accepted throughout most of the world. That’s not to say that every retailer accepts every traditional card. Businesses can decide which cards work best for them. For example, Costo only accepts Visa, yet Kroger, the nation’s largest grocery chain, won't accept Visa at its subsidiary markets.

The networks that own Mastercard and Visa set the fees that retailers pay when they accept the card, but they don’t have anything to do with fees you pay as a cardholder. Those charges -- including annual fees, late fees, interest rates, and over-limit fees -- are determined by the credit card issuer. 

In the case of Mastercard and Visa, the issuers are banks or credit unions. They decide to approve or deny your card application, set the terms of your account, pay for transactions on your behalf, collect your payments, and provide customer service.

When you see a name like Chase, Barclays, or Citibank on a Mastercard or Visa, it refers to the financial institution that acts as the issuer.

The other two biggies, American Express and Discover, play the role of both credit card network and issuer. That means that they not only determine the fees that merchants pay for accepting their cards, but they also set the fees that consumers pay for the privilege of carrying them. 

Advantages of traditional credit cards:

  • They're accepted in more countries and more retailers than store cards.
  • Some cards protect you in disputes over goods or services purchased with the card.
  • Some extend the original manufacturer’s warranty on products you buy.
  • Some cover damaged, lost, or stolen items.
  • Credit cards are more secure than cash. It’s easy to put a hold on the card or cancel it if it’s lost or stolen.
  • Regular, on-time payments help build your credit score. 

Disadvantages of traditional credit cards:

  • Most benefits come with limitations.
  • There’s a high cost to borrow if you don’t pay your card off in full each month. Even if you purchase something on sale, carrying a balance will quickly eat up that savings. 
  • Network credit card benefits are useless unless you know about them. Although it’s not fun, you must comb through a card’s contract to figure out what it offers. Remember that contract terms change, too. 
  • Applying for too many credit cards can damage your credit. 
  • It’s easy to get into a financial hole that takes time, effort, and unnecessary interest payments to get out of. 

Store credit cards

If an earnest cashier hasn't offered you a retail credit card (also called a "store card") lately, you probably haven't been out of the house. Retailers push store cards like crazed Girl Scouts selling Thin Mints. They say you'll receive an immediate discount for applying for a card (provided your credit application is approved) and talk up the benefits you'll receive for being a faithful customer.

Retail credit cards can be a complex web of purpose, promise, and problems:

  • Purpose: It's with good reason that retailers want you to have one of their credit cards. Not only does it save the fees they normally pay when they swipe a major network card, but retail credit cards are also collect information about you and your purchases. This information helps the company customize the way they market to you. Store credit cards are also designed to make you a faithful customer. The more you spend, the more you earn. Or so the theory goes.
  • Promise: Store cards often earn points you can redeem for rewards. As you stand at the checkout counter, looking into the kind of eyes of a sales clerk, it's easy to convince yourself that the card will save you money. After all, you shop there all the time anyway, and the discounts will come in handy. 
  • Problems: Once that retail card is in your hand, you'll start receiving advertisements in every delivery method possible. You'll be reminded daily why you "need" to get into the store and take advantage of their once-in-a-lifetime savings. You may stop looking for bargains at other stores because this retailer pays you back for spending with them.

Advantages of retail credit cards:

  • If you've never had credit or are rebuilding your credit, store credit cards are generally easier to qualify for than network cards. You get the credit you need to prove yourself. Like a traditional big-name card, your payment history is reported to the credit bureau each month. 
  • You can receive an initial discount on your purchases for signing up. 
  • You're likely to receive special offers throughout the year, available only to store card holders. 
  • Retail cards may offer deferred interest. If you're purchasing a big item, like flooring or furniture, a store card with deferred interest lets you pay it off with little or no interest. 

Disadvantages of retail credit cards:

  • You can only use the card at that store or -- occasionally -- with related brands.
  • Most store cards come with low credit limits. 
  • Applying for a retail card requires a credit check, which shows up on your credit report. Applying for too much credit in a short period can make it tough to get credit if you really need it.
  • Retail credit cards tend to carry a higher interest rate than traditional cards. The average APR for store-only credit cards in 2018 was 27.23%. The average for a traditional credit card at the end of 2018 was 14.73%, according to the Federal Reserve.

Credit is great when properly managed. Whether you opt for a traditional credit card, store credit card, or a mix of both, it’s important to make that credit work for you. That means never carrying a balance, using reward points for things you actually need and would have paid cash for otherwise, and saying no to that kind cashier when she offers you a retail credit card you don’t really need.

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