Store credit cards aren’t all created equal. While a select few offer great rewards, many store cards don’t provide as much value as a traditional credit card. Retailers are aware of this, and they’ll offer discounts at the cash register to entice customers into signing up.
There are a few warning signs that will alert you that a store credit card is more trouble than it’s worth. Look out for these five red flags before you sign up for a store credit card.
High Interest Rates
Store credit cards frequently have much higher annual percentage rates (APR) than the industry norm, which means that purchases on store credit cards will accrue greater interest and cost you more in the long run.
If you always pay your credit card balances in full before the interest kicks in, a higher APR isn’t a huge concern (though it’s still better to avoid high interest rates). But if you do carry a balance from time to time, you should avoid cards with high APR.
Retailers will try to get customers to sign up for their credit cards by offering a discount at the cash register. But these discounts are often around 10% to 20% off your purchase.
While 10% to 20% off is nothing to sneeze at, you can usually find coupons, storewide sales, or discounted items that deliver the same value and don’t require you to sign up for a new credit card.
Store rewards programs go hand-in-hand with store credit cards, but they might not offer as much value as a traditional credit card on a point-for-point basis. Plus, you may only earn rewards at one retailer, while general rewards credit cards often earn rewards on every purchase.
Limited Usage Potential
Store credit cards are usually limited to one retail chain, and are only valuable if you shop there frequently. If you don’t, you’re better off with a credit card that’s accepted everywhere – they’re simply more useful. Ask yourself how often you’ll actually use a store credit card before you sign up.
Low Credit Limits
Your credit utilization ratio (the amount of your available credit that is taken up by debt) is a major contributor to your credit score. Most experts recommend keeping your credit utilization ratio under 30%. But store credit cards often have low credit limits, and it’s easy to rack up a high balance.
Of course, your credit utilization ratio looks at all your available credit, not just your store credit card. But if your store credit card is the only card you have, or if your other cards have a high balance as well, you could damage your credit score.
Choosing a Credit Card
Retailers want you to impulsively sign up for a credit card at the cash register. But choosing a credit card should be a careful decision, made only after considering your spending goals and researching your options.
The best store credit cards feature competitive interest rates, consistent discounts, and valuable rewards. Some store credit cards (such as the Costco Anywhere Visa Card by Citi) even earn rewards on purchases made outside their borders.
If it’s rewards you want, you should choose a card with rewards that match your spending habits. Many credit cards tailor their rewards to match common purchase types, such as gas, groceries, or travel. If your spending habits are pretty random, you might consider a card with a flat rewards rate on all purchases. Either way, a traditional rewards card might offer the most long-term value.
Finally, don’t forget to compare the fees and APRs of any cards you’re considering.
If you are wanting to know about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated every 14 days.