When Are Store Credit Cards Worth It?

As holiday shopping ramps up, you might see special offers for store credit cards when you’re at the cash register at major retailers. It can be tempting… sign up for a credit card and receive an immediate discount on all of those holiday purchases you’re making that very day.

According to a report by TSYS, 56% of Americans have a store credit card. But before you go out and open one of your own, know that there’s more to consider than just the money you’ll save on the first day. Here are some things to consider before you sign up for a new store credit card (also known as a retail credit card):

Pros & Cons Of Store Credit Cards

• Pro: You can get discounts or special offers. Many retailers offer a special discount on purchases on the day you that sign up for that retailer’s credit card, and you can get exclusive discounts and coupons throughout the year that are only offered to cardholders. Some stores also offer discounts on all purchases; for example, Target’s REDcard gives you 5% off every Target purchase made on the card.
• Con: You might see higher interest rates: The interest rate or APR that you’ll pay on retail credit cards is usually higher than other credit cards. Pay attention to all of the details, including whether there are any promotional interest rates that end — and increase — after a certain time. It’s not uncommon for retailers to offer 0% financing through store credit cards, but if you don’t pay off the purchase in full before the promotional period ends, you’ll likely end up paying interest on the entire cost of the purchase. Mark those promotional expiration dates on your calendar and make sure to plan payments as part of your budget before that promo period ends.
• Con: It affects your credit report. Just like with any other credit card application you submit, there will be an impact on your credit score because it is an inquiry for new credit. This impact is relatively small (usually only a few points), and any inquiry will only impact your credit score for a period of time – with a FICO^® Score it’s one year and usually it’s not shown on your credit report for more than two years. Read more about what makes up your credit score.

After you weigh the various factors, you can decide what’s best for your own finances and whether or not a store credit card makes sense to add to your wallet.