What Makes a Good Store Credit Card, and How to Avoid Bad Ones

As holiday shopping gets underway, many of us will face the pitch at least once at the store register: “Would you like to save 25% on your purchase today by opening a store credit card?”

The specific perk or discount may vary, but retail clerks across the country will generally follow a familiar corporate script, promoting their store’s card as a convenient way to finance purchases while saving you money. And the pressure can be strong.

“You’re checking out; there are 10 people behind you. In that process, what kind of information are you getting?” asks Wei Zhang, senior credit card program manager for the Consumer Financial Protection Bureau. “How much time did you have to process that information?”

To know whether it’s a good offer, it helps to understand the pros and cons of store credit cards — their strengths and weaknesses, their rewards and risks.

Store credit cards tend to suffer from the same drawbacks: higher annual percentage rates than general-purpose credit cards from major issuers and lower credit limits, plus inflexible rules governing where they can be used and how rewards are redeemed. But because of those drawbacks, store credit cards are typically easier to get, which can help those with less-than-stellar credit.

“For folks who don’t have a credit history, or not a very good one, the retail store can be a place to get a card and build your credit history. But there’s a big if,” Zhang says. “They have to make payments on time. Otherwise, just like with any other credit card, late payments will make your credit worse.”

In other cases, a store credit card might be able to help you afford a large necessary expense, with a percentage discount or through a “special financing” offer. While the latter isn’t without risk (we’ll get to that later), if you stick to the terms, you can avoid interest.

Those kinds of savings can be particularly helpful this time of year. Holiday sales reached a record $886.7 billion in 2021, according to the National Retail Federation, and early indications suggest another record-setting performance might be coming. Any chance to defray those costs can seem enticing.

Don’t dismiss an upfront discount right away. Even if it’s a one-time offer, a store card that grants you, say, 40% off a large, planned purchase could be a bargain. Other store cards deliver value in smaller but ongoing discounts: for example, free shipping or 5% off every trip to the store.

A quality store credit card will be an open-loop product, meaning it can be used anywhere, not just at one store. You also should look for rewards that are easy to redeem and don’t expire. Cash back is ideal.

As with any credit card, pay your balance on time and in full each month if possible. If you carry a balance on a store credit card, the high APR will wipe out the value of any rewards.

Here are some common red flags for store credit cards:

• Inflated or confusing reward rates: Many store cards advertise eye-popping figures: “60 points per $1 spent” or “5% back in rewards.” But those points are likely worth far less than the industry standard penny per point — sometimes as little as one-tenth of a cent. And that 5% back is not in cash but “in rewards” that can be used only within the brand.

• Complicated redemption: If a store credit card earns points, there may be a minimum redemption threshold. Other times, points are automatically converted into “reward certificates” — and then delivered by mail. These certificates tend to be doled out in denominations of $5 to $10, making it difficult to bank them for one large purchase. Worse still, sometimes points don’t roll over; it’s use them or lose them.

• Expiration dates: Ideally, credit card rewards should never expire for as long as you hold the card in good standing. But some store card rewards expire in a month.

• Risky “special financing” terms: Many store cards offer “no interest if paid in full” deals. You may also see it phrased as “special” or “promotional” financing. But these are not 0% intro APR offers, in which interest is waived. These are deferred-interest offers, in which interest is still accruing in the background. If you pay off your purchase before the promotion ends, you’re good. But if not, you’ll be charged interest on the entire transaction, retroactive to the date of purchase and at the card’s ongoing (and high) APR.

In a long and busy checkout line, you may feel like you don’t have the luxury of time to carefully weigh the pros and cons of a store credit card. And it’s possible that you’re not getting the best information in the moment.

“The store clerk may not be able to fully articulate the terms and conditions,” Zhang says. After all, he adds, “they’re not financial specialists.”