Retail Credit Cards: Pros, Cons & Alternatives

by Silicon Valley Blogger on 2012-04-0917

“Would you like to save 10% on your next purchase?”

How many times have I heard those words come from the nice lady at the register? My not so fond memories used to stem from the mall where high end department stores wouldn’t let you go until you listened to their sales pitch. Not anymore. That question seems to be present in every store these days.

On the surface it sounds like a good deal, doesn’t it? Your strategy is simple: Sign up for the card, get the card, save 10% or more off of a large purchase you were going to make anyway, pay it off as you would have expected to (but for less!), cancel the card and there you go. You just successfully picked up an easy bargain.

But are these cards really worth owning? The stores that carry them are counting on the one idea that gets some of us into trouble over and over again.

Do You Really Need Retail or Store Credit?

Procrastination. How often do you tell yourself, “I’ll fix it tomorrow.”?

The old cliché, “life is full of good intentions”, is alive and well. In my life, I often say that I’ll eat better tomorrow, I’ll work out more tomorrow, I’ll run the errands and do the laundry tomorrow. In the financial world, the monologue goes something like this: I’ll pay with cash from now on, I’ll not buy anything that is labeled “a want” until I pay off my credit cards, and all this, I’ll start tomorrow!

retail credit cards

But here’s what the retail stores know will REALLY happen, at least, for a percentage of customers: Sign up for the card, get the card, save 10% off of something large while also buying something else, come back tomorrow and buy something else, get the bill at the end of the month, realize you don’t have the money to pay all of it, pay the minimum, start adding the higher than normal interest, repeat the process next month.

While credit cards can be quite useful as part of your arsenal of payment tools, there are some that may be more useful than others. I believe that retail cards, in particular, are best suited for those who “have to start somewhere” with their credit and who are having a harder time establishing credit through other means. What is less appealing about store cards is how they are counting on impulse buyers to open a credit account with them. On the surface, they’re not terrible — they’re just another account to keep track of and you may just enjoy a good number of loyalty rewards this way. But in general, such cards can be quite redundant if you consider how they stand up against general rewards cards today. Let’s look at these cards a bit more closely.

Why Say “No” To Retail Credit Cards? The Cons

One good strategy to help you start curtailing any of your extra spending is by saying “no” to temptation. This could mean saying “no” to any retail credit card offers that come your way at the cash register or through your mail, especially if you already own a lot of other cards. Why have so many? Allow me to give you a few other facts that may discourage you from taking these deals:

1. The interest rate for retail credit cards is almost always higher than that of other credit cards. It’s often more than 20%!

2. When you fill out an application for credit, it goes on your credit report as a negative point. Sure, this is the side effect for applying for any type of loan; but in this case, store credit is one of those things that is relatively easier to access. After all, it’s right under your nose when you go shopping. Applying for too many of these can be hazardous to your credit status.

3. Closing a card account doesn’t remove it from your credit report. It will be there for seven years. So you may want to think twice if you’re in the habit of signing up for a card at each store you visit with the plan of closing your account later.

4. Store credit cards may not offer the same dispute rights. Using your Visa or other regular prime credit card gives you the right to dispute charges.

5. You can find better benefits by using a credit card with rewards. Using a general card that’s geared to offering you rewards points may be a better deal and may give you greater flexibility, if you have a good handle on your card use.

6. Retail cards are a hassle to keep track of. I find that they pretty much just clutter up my wallet (and my financial set up). They’re not that convenient to use either, given that you’re limited to using them at specific stores.

7. The terms or features for these cards may not be as attractive as those of non-store cards. For instance, they may have shorter grace periods or none at all. Of course, there are specialty cards that have competitive deals as well, but it’s best to compare them against other products in the card universe to see if they’re worth getting.

8. The minimum payment charged by such cards may be quite small, which will keep you in debt for longer. You can expect to pay much more interest over time in this case.

9. Discounts through these cards may not be combined with other sales. One of the most irritating aspects of store sales is how they sometimes nullify the extra discounts that are supposed to be granted through store cards. Also, there can be a lot of fine print in a store’s sales fliers. Macy’s is notorious for adding a ton of fine print that can nullify your discount (even with your card) based on complicated requirements they have on their sales coupons. Sometimes, it’s better to just make a purchase off their clearance rack and get their discount on that price tag (and you don’t need a card for this)! Because prices change so much at these stores on a daily basis based on some sale or another, it can be hard to pin down that final price.

The Benefits of Store Credit: The Pros

In general, store or retail cards aren’t the best type of cards to own, especially due to their high interest rates. If you tend to fall into the debt trap easily, then this is not the kind of card you should be carrying. However, they have some advantages, such as the following:

1. Loyal customers can appreciate them. For example, my own mother loves retail credit cards. She patronizes certain stores for their discounts as a loyal customer. While I’ve asked her about how these cards have served her, she’s assured me that she remains a satisfied customer who has been happy about the extra perks and discounts she’s received by using the card. Well, as long as you can keep tabs on these cards and are able to pay them off in full each month, then go for it. It boils down to personal choice.

2. Retail credit cards can help you build credit. In addition, you can use such cards to work up your credit history. But realize that there are also other ways to build credit that may be much more effective for the general consumer. Secured credit cards have a more general use and have stricter requirements on your credit line.

Popular Retail Cards

Turn into any store and you’ll encounter their branded card. Here is a handful of popular store credit cards plus my critique of the lot.

Card Type Retail Card General Features
Books Barnes & Noble Card Get a free $25 gift card upon your initial purchase. You’ll continually receive free B & N gift cards as you rack up the reward points. There’s a low rate for balance transfers, but terms are much better with standard balance transfer cards.
Discount Warehouse Costco TrueEarnings Card This Costco card is cobranded with American Express and has its own rewards program. You’ll typically get 3% cash back on many items. For more on this card, check out this review of the TrueEarnings card.
General Retail Target You can go for either a debit card or credit card. Earn the typical 10% off on goods. I have this card but have never used it beyond the time they enticed me to get 10% off during one visit.
Clothing & Apparel GapCard or Gap Visa Gap will give you the occasional $10 rewards cards as you rack up the purchases. Every $200 in spending on your GapCard or Gap Visa will yield you a $10 rewards card. By default, you can also get a point per dollar spent wherever the Gap Visa is taken. You may get other extras by spending at Gap’s affiliates.
Department Store Macy’s I often shop here, so I get their pitch ALL the time. They’ve got a lot of cards that have variable features. The problem with their cards? Card discounts may not apply all the time. For instance, you may not be able to stack up the discounts when an item already has a sales price. So ask questions before signing up.
Department Store Nordstrom Nordstrom offers several credit cards and debit cards. Receive gift certificates when you build up points.
Children’s Apparel The Children’s Place I also carry this card and it’s not too bad. You are given 20% off upon approval and 5% savings every time you use the card. They have seasonal gift card sweepstakes (one I saw was for $500).

In Conclusion

Now, if you know yourself well enough and realize that you and credit don’t mix, then by all means, do away with this kind of plastic. For those who are not interested in establishing credit but like the convenience of using a card (rather than cash), then there’s the PerkStreet Financial debit card, which also offers cash back and other rewards.

In conclusion, store and retail credit cards have a market (yes, my mom falls in that market), but it’s not for everyone. When the nice salesperson at the next store you visit tells you that you need their card, don’t automatically sign on the dotted line. Give it some careful thought and your financial health will thank you.

Created June 25, 2010. Updated April 9, 2012. Copyright © 2012 The Digerati Life. All Rights Reserved.

{ 17 comments… read them below or add one }

Bucksome Boomer June 25, 2010 at 8:47 pm

I have one store credit card that I use sparingly but it usually saves me 30%. Their coupons are only good when paying via the Kohl’s card. I then pay the bill off as soon as I get it.

Evan June 26, 2010 at 12:33 pm

Such a timely post! I never use/apply for store credit cards until last week. I went to buy diamond stud earings for The Wife at Macy’s – and it was 20% off a good amount of cash, I couldn’t turn it down.

But great review of pros and cons.

Jay June 27, 2010 at 11:45 am

Great over view — Bucksome has the perfect solution. Get the discounts but pay it off every month!

Impulse Magazine June 27, 2010 at 12:50 pm

I definitely try to avoid these at all costs because I would spend too much money!

Stella June 28, 2010 at 11:35 am

The only store credit card I use is my Gap card. It’s good at Banana Republic, Old Navy, etc. and since I do a lot of shopping at Gap, the rewards do build up. Plus I always pay off the balance so no worries about the APR.

CreditShout June 28, 2010 at 2:30 pm

I’m sure they’re all different, but overall store credit cards seem like a bad idea. Rewards cards seem like they would save you more money. I didn’t realize that these cards stay on your credit history for so long!

Consumermiser June 28, 2010 at 4:04 pm

Nice post. This post exposes the store cards for what they are–highway robbery! These cards are such a bad deal for the consumer because of their interest rate that we as consumers should demand major changes.

On the flip side, I agree with SVB, if you use store cards, at least pay them off in full each month to make them work for you financially. I have to admit that store cards are an option to build credit as well (and may be easier to get than major credit cards). If credit is what you are trying to build, go for a major credit card or pre-paid card first.


WP Bonds October 1, 2010 at 3:11 am

Credit has effectively destroyed a once great nation. It is a terrible thing that promotes self-destruction.

Tara April 3, 2011 at 6:12 pm

I love my rewards visa. I pay it off the day after the statement comes every month and I get 3% back on all of my purchases. I’ve never had a problem with credit and use the cards just for the rewards.

Jesse W March 14, 2012 at 4:32 pm

Retail credit cards are such a trap. They make you think that the rewards are going to outweigh the interest but it is never the case. You should only take out one of these cards if you are 100% certain that you will pay it back EVERY SINGLE MONTH!

Silicon Valley Blogger April 9, 2012 at 2:20 pm

Amazon is my main stop for online purchases, but I have resisted getting their card every time I come across it, which is every time I place an order. Although I have to hand it to them for doing a good job of putting their card front and center as a way to shave off the dollars from your order if you become a card holder.

Brent Pittman April 9, 2012 at 4:07 pm

Anything that is at the impulse point, right before the final transaction takes places is usually a bad idea: candy bars at grocery store, super-sizing the fries, extra warranties, and also in-store credit. Once at a Macy’s I was making a large purchase and asked for the discount anyway and they gave me the 10% discount without getting a card. Doesn’t hurt to ask.

Heidi April 9, 2012 at 4:55 pm

Store cards are a clever idea — for the retailer. If you can just hook the customer with a card, you will quite likely get a repeat customer, someone who will keep coming back to justify the use of that card. My sister has fallen into this kind of trap and I keep telling her to hold off on trying to get discounts this way. She falls for the 10% off thing at these places that trade you the discount for a credit account. Then she feels guilty about the card just sitting there so she tends to use it more often than she needs to.

I think these cards can have that psychological effect — you want to gain points to get some reward later on so you keep spending to get it. Or you may feel less guilty about spending bec. you think you’re being good about using a card that allows you to save. You’ll say it’s good for your credit anyway…. so how many of us are slaves to the banks this way?

Tyler S. April 9, 2012 at 7:46 pm

I think it’s been mentioned already, but the Kohl’s card(s) offer a lot of benefits and discounts that you wouldn’t qualify for without one. If you like Kohl’s and can keep your spending within your limits, you may want to check it out!

Silicon Valley Blogger April 9, 2012 at 8:25 pm

Thanks for the tip. Sounds like how The Children’s Place works, as well. This got me thinking though — if we are just after discounts, then why not look for coupons to these specific stores instead. I use Ebates and Big Crumbs, for example. They allow you to get cash back online if you shop at the online hubs of these stores, which translates to regular savings. Of course, it could be a different story when you are shopping on location (you may have to go for sales in a diff. fashion).

alanc230 April 10, 2012 at 8:40 am

We make a point of avoiding actions that could hurt our good credit ratings. Since applying for credit shows up on a credit score, we don’t do these. We each have a debit card from our checking account, and one fairly low-rate credit card, and that’s plenty.

Instructor in Walmley April 20, 2012 at 10:30 am

From my understanding, a couple of credit cards actually helps to increase your credit rating provided that they are well managed! Is this not the case???

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