Credit Karma’s guide to retail credit cards

Young, cool woman smiling after shopping and reading Credit Karma's guide to retail credit cardsImage: Young, cool woman smiling after shopping and reading Credit Karma's guide to retail credit cards

In a Nutshell

Store credit cards can have some tempting rewards, but they may also come with high interest rates and other drawbacks that you should know about.

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This offer is no longer available on our site: Target RedCard™

Retail credit cards seem ubiquitous. Think Amazon, Kohl’s, Old Navy, Target, Wal-Mart — these are just a few of the recognizable retailers offering branded credit cards.

The pitch usually goes something like this: Open a card today to unlock 15% — even 30% — off.

But are retail credit cards worth it?

Credit cards from your favorite stores can be a good way to get benefits or rewards such as discounts, points, cash back or free shipping.

But they also come with certain drawbacks that you should know about, such as high interest rates and low credit limits.



The best store credit cards

If you’re shopping around for a store card, here are some options to consider.

Great for Target discounts: Target RedCard™

APR: A variable rate of 24.4% for purchases

Annual fee: $0

Benefits and rewards: There’s a 5% discount on purchases at Target stores or on Target.com when you use your Target RedCard™.

You’ll also get 30 extra days beyond the normal return policy for returning purchases from Target and Target.com. And you’ll benefit from free shipping for purchases from Target.com when you use your card.

Why it’s a good option: The 5% discount on eligible purchases is a great deal, especially as Target stores are found in 49 states in the U.S.

From our partner

Target RedCard™

From cardholders in the last year

Great for Amazon rewards and financing options: Amazon.com Store Card

APR: A variable rate of 25.99% for purchases

Annual fee: $0 annual fee

Sign-up bonus: $10 Amazon gift card once your application is approved

Benefits and rewards: There are special financing options for certain purchases from Amazon.com. You won’t have to pay any interest if you pay off these purchases of $150 or more in full within six months, or $600 or more within 12 months.

Note that if you don’t pay off the total purchase amount by that time, you’ll have to pay the interest — which will be calculated based on your card’s APR — from the date you made the purchase.

You should also note that minimum monthly payments are required.

If you’re an eligible Amazon Prime member, you can choose between the special financing option or you can earn 5% back as a statement credit on purchases from Amazon.com. There’s no limit to how much you can earn back.

Why it’s a good option: The 5% back for Amazon Prime members can add up. And if you’re not a Prime member but you’re thinking of making a big purchase, the special financing options can help keep interest rates down.

Great for cash back on Best Buy purchases: My Best Buy® Credit Card

APR: A variable rate of 25.24% for purchases, but cardholders can get an APR of 11.90% for select purchases eligible for a 48-month reduced rate credit plan (the store sales associate or store website will identify which purchases are eligible for this plan).

Annual fee: $0

Sign-up bonus: On top of the reward points you can earn, there’s a sign-up bonus of an additional 2.5 points in rewards on purchases made on your first day of using your card.

Just remember that you have to make your purchase within 14 days of your account opening in order for it to qualify.

Benefits and rewards: Earn 2.5 points for every $1 you spend on qualifying purchases from Best Buy when you make the purchase with your My Best Buy Credit Card with standard credit.

For every 250 points you receive, you’re eligible for a $5 reward certificate, making your rewards worth 5% cash back.

Or you could choose a financing option like 12 months interest free for qualifying purchases $299 and up if you pay the balance in full with monthly payments within 12 months.

Just be aware that if you don’t pay the balance in full, you’ll have to pay the interest charged on each month’s balance from the purchase date.

Why it’s a good option: If you want to buy that new MacBook Pro or flat screen TV at Best Buy but don’t have enough for the purchase or don’t want to pay interest on your regular credit card, the My Best Buy® Credit Card can give you the wiggle room you need.


The pros of store credit cards

One benefit of retail cards is that people with lower credit may be more likely to be approved for them, according to John Ulzheimer, president of The Ulzheimer Group and a nationally recognized credit expert with more than 25 years of industry experience.

“Almost all of them have subprime terms, which could mean more people with poor credit can qualify for them,” Ulzheimer says.

Store cards may help you improve your credit if you use them carefully. Pay off all or as much of the balance as you can every month to avoid interest charges. It’s also important to always pay on time.

Another benefit of store cards is that many reward shoppers for their loyalty. In addition to sign-up incentives, such as a discount on your first purchase with the card, some cards may offer ongoing discounts whenever you shop.

For example, the Target RedCard™ offers cardholders a 5% discount on all Target purchases they make with the card.

The cons of store credit cards

Retail cards can also have some downsides.

“The disadvantages are considerable — very high interest rates, very low credit limits and limited usability,” Ulzheimer says.

One of the drawbacks of store cards is that they tend to have higher APRs. According to a 2016 Retail Card Survey, almost half of the surveyed store cards offered by major U.S. retailers had an APR of 25% or more.

A high APR means that if you don’t pay off your balance in full and on time every month, you may end up paying more in interest than you bargained for.

Heftier interest payments may be one factor that leads some Americans to default on these store cards. Equifax reported that the percentage of severe delinquency on private-label retail credit cards rose to 4.65% in May 2018 — and that delinquencies were at their highest level since early 2011.

Another drawback is that many retail cards have a low credit limit. A low credit limit can affect your credit utilization rate, a number that reflects how much of your available credit you’re using.

For example, if you charge $800 to a store card that has a credit limit of $1,000, you’re using 80% of your available credit on that card.

Credit card issuers like to see a low credit utilization rate — experts recommend below 30% — because this is a sign that you’re a lower risk customer. If you’re going to use a store credit card, pay off the balance in full every month to keep your utilization rate low.
What is the average APR on a credit card?


How to get a store card

Depending on the card, you may be able to apply for retail cards online, in store or by mail.

Just keep in mind that when you apply for most credit cards, the credit card issuer will ask a credit bureau for information about your credit history.

This will likely result in a hard inquiry on your credit reports, which may lower your credit scores.

The credit card issuer will look at several different factors when reviewing your application to get an idea of your credit health.

Your application may be approved or denied immediately, or it may take a few days for the credit card issuer to review your application.


Bottom line

Store credit cards often offer benefits to reward shoppers for their loyalty.

But before you apply, think about how often you’ll shop at a store and whether it’s worth a hard inquiry on your credit reports.

Retail cards can also come with a high APR, so you should calculate if the rewards are worth the interest rate.


About the author: Satta Sarmah Hightower is a writer, editor and content marketing manager with a decade of experience in the media industry. Her writing focuses on healthcare, personal finance and techno… Read more.