Best Store Credit Cards 2023
Why do store credit cards tend to have lower credit-standing requirements than general-purpose cards with equivalent terms?
Store credit cards typically are tied or linked with only one store or brand (such as the Target Red Card or the Kohl’s credit card, for example) and therefore have low credit limits with higher APRs. The fact that they can be only used at a particular store or brand reduces their effectiveness for emergency purchases or when customers want to use them for regular purchases at other vendors to get cashback. Thus, such cards are not popular with all customers, but only those who are regular shoppers at the particular store or brand. The higher APRs mean that customers need to be very vigilant when making purchases and making payments. The lower credit limits mean that these cards are great for younger people or newer immigrants to the United States who wish to build a credit history in the country. Customers also need to keep in mind that these store cards are not issued by major networks like Visa or MasterCard, but rather by institutions like Synchrony Bank, which typically set lower credit limits (sometimes as low as even $300), and very high APRs (sometimes well in the range of over 25%).
How do retailers establish the terms (i.e., rates, rewards, and fees) for their store credit cards?
Because store credit cards do not possess stringent issuing guidelines as compared to regular credit cards, the application and qualification process is fairly straightforward since the credit limit is very low at times. Because of these factors, store credit cards have high APRs ranging from anywhere between 20% to upward of 30%. The absence of a welcome bonus (something that traditional credit cards focus on) is compensated by an initial discount on your first purchase and possible cashback on purchases at the specific store or brand that issues the card. As such, many store cards do not come with annual fees, provide cash back on purchases tied to the brand/store, are easier to qualify, and may also offer free shipping for their members.
Is a great store credit card enough to make a retailer more popular?
For individuals with a low credit score that are trying to boost their credit scores or those who are trying to build credit in the United States, store credit cards are good if customers make payments on time and do not stretch their credit limit, or end up with higher APRs (for example, the Target Red Card has an initial credit limit of $300 and a customer buying products worth $270, has already used up 90% of this credit limit, which can impact their credit score). Target, Best Buy, Kohl’s, Amazon, and Walmart, to name a few, are some of the popular store credit cards. The idea behind store credit cards is to build up a customer base and increase customer brand/loyalty. By offering store credit cards, lower qualification criteria, and cash back on purchases made at the store issuing the brand, these retailers encourage customers to shop more at the brand, thus fostering customer loyalty and repeat patronage. So yes, store credit cards do make the retailer popular on account of these factors and also help get and retain newer customers in an intensely competitive retail environment.
Is it a bad idea to apply for a credit card in a store?
While the benefits of easy qualification, free shipping, building credit scores, and earning rewards can be lucrative for certain customers, for others store credit cards can be difficult to manage if one is not vigilant and judicious in using them. For example, the high APR/ interest rates along with the deferred interest can easily cause customers to land into financial problems, and if one is not careful about credit utilization, it can defeat the very purpose for which the card was obtained (to improve one’s credit score). Also, store cards are not widely accepted at all merchant/retail locations, especially when one is traveling and needs to use them in an emergency. Thus, applying for a store credit card is good if the customers know what they are getting into, are cautious and careful in using the card at all times, and are regular patrons of the specific brand (which helps get the rewards, cash back, and free shipping that can be very useful).
How many store credit cards is too many? (For example, should consumers get a store credit card for all of their favorite retailers?)
There is really no magic number for any specific number of credit cards that a customer should have or limit themselves to. If you are someone who shops regularly at specific brands and wishes to leverage some of the benefits that come with these store credit cards (free shipping, rewards, cash back), and if you are careful about using them, paying bills on time thus avoiding high interest and APRs, and know exactly about credit utilization limits, then as a customer that should not preclude you from even having several store credit cards. Of course, your credit score will take the initial hit and be impacted once a hard inquiry is done when you apply for the store credit card the first time, but beyond that, if you are prudent and careful, you could have multiple store credit cards to get benefits at your favorite retailers. One advice I would give is that do not open multiple store cards at the same time, particularly if your credit score is already poor or average. In such cases, it is better to phase out applying for such store cards, rather than obtain them all together.
How does the value of store credit at a favorite retailer compare to the value of cash?
Some store credit cards like Target’s Red Card, for example, are ideal for regular Target customers and patrons. The 5% cash back on purchases is very attractive and other benefits such as free 2-day shipping and extended returns and exchange period for Red Card holders are definitely lucrative if you buy regularly at Target. The Walmart and Costco cards offer somewhat similar benefits with some subtle differences. Many individuals possess store credit cards for a variety of retailers and in my opinion, that is a great idea if you have a good credit score, but if you are new to the country and want to build your credit score, then it is good to start with just 1-2 store credit cards so that you do not impact your credit score. In my opinion, if one uses store credit cards wisely, then that can amount to significant annual savings in the long run.
Read the full article here on WalletHub.