Is a Store Credit Card Right for You?

A female clerk at a clothing store swiping a credit card on a payment tablet.

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The answer isn't as straightforward as you might think.

There are about 392 million store credit cards in circulation in the United States right now, according to The Ascent's recent research on credit and debit card market share. That's almost 35% of all the credit cards in the country.

It's easy to see why there are so many. They offer special perks and savings, but each is usually only good at one store. If you're wondering whether you should give a coveted place in your wallet to a store credit card, here are four questions you should ask yourself first.

1. How often do you shop at that store?

If you only shop at a store once or twice per year, you probably won't get a lot of value out of its store credit card. But if you're there every other week, you may spend enough to earn valuable rewards. If you can also use the card at the company's sister stores, that can increase its appeal. Weigh how often you shop at all of these stores when deciding whether or not it's worth it.

2. What perks does it offer?

Store credit cards tend to offer perks like cash back on in-store purchases or discounts when you use your card. These can be valuable, but they're not necessarily more valuable than what you could get with a cash back card. For example, if your store card offers 3% back on all in-store purchases, but you could earn 5% using a cash back card with rotating categories, you're better off using your cash back card. These tend to offer more versatile rewards as well.

Compare the rewards the store credit card offers to the rewards you could earn using the cards that are already in your wallet. If none of your current cards offer good deals at the store in question, it could be worth opening a store credit card.

3. What is the store credit card's APR?

Store credit cards usually have higher APRs than more traditional rewards credit cards. This doesn't matter if you pay your balance in full every month because you won't have to worry about interest. But if you've been known to carry a balance, a store credit card might make your debt problems worse.

You should get in the habit of always paying your credit card bill in full every month if you're able to, but you should definitely prioritize paying off your store credit cards if they charge higher APRs than your other cards.

4. How will this card affect my credit score?

There are a few ways a store credit card could affect your credit score. First, every time you open a new credit card, the lender does a hard inquiry on your credit report, which drops your score by a few points. It's not a big deal, especially if you're approved for the card. But if you've applied for several credit cards or loans over the last few months, those little hits can add up. In that case, consider waiting six months or so to apply for the store credit card.

Credit cards can also affect your credit utilization ratio. This is the ratio between the amount of credit you use monthly and the amount you have available to you. If you have a card with a $1,000 limit and you spend $250 one month, your credit utilization ratio is 25%. You don't want this ratio to exceed 30%, and you should keep it as low as possible.

This is challenging with store credit cards, because they usually have low credit limits. If your card only offers you a $500 limit and you make a $200 purchase, your credit utilization ratio is 40%, even though your balance is small. This can hurt your credit score.

You probably won’t find a store credit card that offers you a $10,000 limit, but you should make sure the limit is reasonable, given how much you normally spend there in a month. Try to ensure that your credit utilization ratio won't exceed 30%. If you do end up charging more than this to your card, consider making a payment halfway through the month and again at the end. Credit bureaus only see your final balance each month, so this allows you to spend more without raising your credit utilization ratio.

You need to be discerning when it comes to all of your credit cards, and this is especially true for store credit cards. They're usually easy to get approved for, and they offer some nice perks, but their limitations could reduce their utility and your credit score, so make sure you've thought it through before you apply for one.

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