Are Store Credit Cards Ever a Good Idea?

store credit cards

“Do you want to save 5 percent today by opening a Target card?” I have said no to this question more times than I can count.

Stores offer credit cards to build customer loyalty and make more money. Most of the time, they are not a good enough offer to be worthwhile — but sometimes it can make sense. Here are the biggest factors to consider when deciding if it’s a good idea for you to open up a card from your favorite store.

The benefits

Most stores offer you some sort of discount or cash back when shopping at that store. If you shop at one store a ton, the benefits may be worthwhile.

My first job after college was in a bank, and I had to wear a suit and tie every day to work. I had a few dress shirts and ties but not enough to support a full-time job, so I went to Kohl’s regularly because I could get good deals on shirts and ties.

With almost constant sales and markdowns, the prices for men’s dress clothing was reasonable. With a Kohl’s credit card, you got 15 to 20 percent off deals in the mail regularly — turning reasonable prices into good deals.

So I got a Kohl’s charge card. It saved me hundreds of dollars on my work wardrobe and didn’t come with any annual fee, so even if I didn’t use it, it wasn’t costing me anything.

As Lee Huff from Bald Thoughts points out, “[Store credit cards] usually don’t have an annual fee.” If the card you’re looking at does come with an annual fee, make sure the benefits you will get are worth more than the fee, or it won’t be a good deal for you.

If you can find a card that will save you a lot of money, it may make sense for you to open the store card.

Credit score implications

Opening a new credit card of any type will temporarily lower your credit score, and a pattern of opening new cards can keep your score lower than it would have been otherwise. That can harm you later on when you apply for a mortgage or car loan.

Casey Flemming at Loan Guide cautions people to be aware of what happens when you open lots of store cards. “I’ve seen clear evidence that multiple store credit cards damage your score. Even folks with a perfect credit history have scores under 700 if they have more than about four store cards.”

While any credit card increases your total available credit (which can slightly increase your score), opening a new card lowers your average age of credit. Even worse, carrying a balance increases your debt utilization percentage. Both of these things can harm your credit score.

Learn more about the ramifications to your credit here.

Debt implications

If you’re already in student loan debt, do you really want to add credit card debt to the mix? Probably not — but when you sign up for a new store credit card, that is exactly what the store hopes will happen.

The bank behind the card hopes you will carry a balance from month-to-month and pay interest. If you think student loan interest is bad, just wait till you see how high interest rates are on store credit cards. Target’s REDcard currently has a 23.15% annual interest rate, and the Gap card charges 25.24% interest. That’s huge!

Unless you can pay off the card in full every single month, department store credit cards are always a bad deal.

Spending implications

The store designs the benefits of their credit card to get you to spend more when you shop. How will spending more affect your budget or your student loan payments?

The psychology of credit cards is complicated, and they can make you feel like you’re not spending real money on your purchases — but you are. If it doesn’t feel like you’re spending cold hard cash, it’s easy to spend more (and sometimes spend more than you have).

“I’m always skeptical of something that a sales associate is pushing, like an extended warranty or a store credit card with a huge discount for the day,” says financial blogger Valerie Rind. After all, the stores are selling credit cards for a reason and use clever tactics to get you to sign up.

I know this from experience: My high school job was as a cashier at Target, and I was one of the most successful at pushing the cards in my store. I didn’t realize until later how bad of a deal it was for most customers.

Do store credit cards make sense for you?

Jim Wang at Wallet Hacks points out that department store credit cards are “easy to get when you have little to no credit history.”

If you’re new to credit and looking to build a positive credit history, this is a big benefit. If you can save a lot of money at a store you would have shopped at anyway, that’s another compelling benefit.

However, if you’re going to pay interest every month, spend more money than normal, or pay a hefty annual fee, it probably is a bad choice. Even worse, if a store credit card lowers your credit score, you could end up paying thousands more in interest on a mortgage or car loan down the road.

For most people, a store credit card doesn’t make sense. But if the benefits outweigh the costs for your personal situation, say yes the next time a cashier offers you a card at checkout.

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