Why It's Time to Ditch Your Store Credit Card

by Matt Frankel, CFP® | Updated July 28, 2021 - First published on Sept. 12, 2020

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A man speaking with a salesman in an electronics store in front of a wall of TVs.

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Store credit cards are usually inferior to their traditional counterparts.

Store credit cards may seem like great deals at first. They often give new applicants a valuable coupon, and tend to have enticing interest-free financing deals.

However, store credit cards are typically not the great financial tools they are made out to be. They have major shortcomings that might make it smart to ditch your store credit card and use a traditional card for your next purchase.

Three big shortcomings

Store credit cards can be decent options if you want to take advantage of an interest-free financing offer, or if a store credit card offers a high rewards rate and you're going to pay off your purchases immediately. But there are major downsides to store credit cards you should be aware of.

  • High interest rates: The average credit card interest rate (excluding 0% intro APR offers) is 15.8%. But many store credit cards have interest rates that are much higher. It's not uncommon for a store credit card to have an APR of nearly 30%. If you plan to carry a balance at all, this makes a big difference.
  • Lack of perks and rewards: Many store credit cards have rewards rates that aren't competitive with the best rewards credit cards. Some offer no rewards or perks at all.
  • Deferred-interest financing: Many people are unaware that when you sign up for a traditional credit card with a 0% intro APR offer -- say, 0% intro APR for the first 12 billing cycles -- it is truly interest-free. If you don't pay your balance in full before the 0% intro APR period runs out, the interest will only then start to accumulate. On the other hand, store credit cards' promotional financing deals are typically structured as deferred interest. This means that if you don't pay off your purchases in full before the promotional period expires, not only will interest begin to accumulate, but all the interest that you would have been charged from day one gets added in. I had a friend in college who financed a TV with 24-month deferred-interest financing, made the minimum payments, and was shocked to see nearly $500 in deferred interest added to his 25th billing statement.

When you should use a store credit card

To be fair, there are some situations where a store credit card makes sense. For example, although they are normally structured as deferred interest, store credit cards sometimes give you more time than traditional credit cards do before interest kicks in. In the interest of full disclosure, I recently used a store credit card at a major electronics retailer to buy a new TV because I got a 24-month interest-free period. Sure, the interest is technically deferred, but I plan to pay off the balance well before the two-year period expires. I've seen some store credit cards (especially at furniture stores) offer no-interest financing for as long as five years.

Furthermore, there are some store credit cards that offer competitive rewards and other perks. If this is the case, it can be worth using, but if and only if you are certain you'll pay it off before interest kicks in.

So while there are some cases where using a store credit card can make sense, it's important to be well aware of the drawbacks before you sign up.

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