Why You Should Avoid Using A Store Card This Holiday Season

By Chika


Last Updated: December 3, 2022


The holiday season is here again, and as usual, retailers will be offering us items and deals at discounts, one of which your favorite store may be offering being a store card.

Of course, it's tempting to say yes, considering that you'll be offered extra savings on your purchase for that day.

But there is good reason to think twice this season before signing up.

In this article, we look at why you should rethink before accepting a store credit card. 



What is a Store Card?

A store card is simply a credit card that can only be used in a specific store or group.

Store cards are different from loyalty cards, which allow you to collect points when you spend in a particular store. Store cards, on the other hand, allow holders to use the cards only at a specific store.

Holders are eligible for benefits or discounts, and can also borrow money to do their shopping at stores of the provider. For example, if you have a store card for Walmart, you are eligible to borrow money to do more shopping at its stores. 



How Do Store Cards Work?

You need to be 18 or over to apply for a store card. Once you apply for a store card and it's accepted, the store card provider issues you a card with a specified credit limit based on your creditworthiness.

This is based on your credit history, income, and any relevant information from a credit reference agency

Requirements for getting a store card are lower than that of credit cards. This is because stores need you to come back and shop. As such, if your credit scores are fair, you will definitely get a store card.

On the other hand, if you need a co-branded store card, then the credit requirements will be higher. That's because co-branded cards are issued by the partner bank, not the retailer. If you apply for a co-branded card and get refused, you may still be able to get a store-only card from the same retailer.


Benefits of Using Store Cards

  • You may be able to get discounts on purchases made with the card, or early access to sales
  • You can spread the repayments of a purchase over several months or longer
  • May be the option for those without a credit history
  • Can be used to build a credit score to apply for credit cards 


Drawbacks of Using Store Cards

  • Store cards tend to have higher interest rates than standard credit cards and as a result, could cost more if you use them to borrow money
  • Unlike credit cards, you can only use store cards in one store or a group of stores
  • Store cards tend to have much lower credit limits than credit cards. If you need to borrow a higher amount of money, a credit card would be a better option
  • Can lower your credit score 


Store Cards and Interest Rates

Store cards can only indicate high-interest debt if you are negligent.

After all, stores are designed to make the shopping experience appealing so that customers will purchase more.

The typical retail credit card has an APR of 26.72%, which is how much it will cost you annually to carry a load. Some companies charge up to 30.74%. 

This is significantly higher than credit card interest rates have recently climbed to 19.14%. Given that the Federal Reserve is hiking interest rates in response to rising inflation, this suggests that the cost of borrowing will continue to increase. This makes debt more expensive for store cardholders. 



Store Cards and Your Credit Score

Depending on your credit history, credit score, and how you use the card, store credit cards can either help or hinder your credit.


They can help you build your credit score - if you use them wisely.

A retail credit card can be a helpful tool for establishing or repairing credit if you have bad credit or a short credit history.

These cards are frequently easier to obtain than standard credit cards if you have a poor credit score or a sparse credit history because they typically have less strict acceptance criteria.

Like with any credit card, your credit score can be steadily raised if you use your store credit card to make a little purchase each month and pay it off in whole and on time.

If a store card is the first credit card you have, you can eventually switch to a standard credit card once your credit history has been established. To avoid reducing your overall credit limit and maybe raising your credit use ratio, be cautious before closing your retail card.


Watch your credit utilization

The second most significant component of your credit score is credit utilization, which evaluates how much credit card debt you have in relation to your total credit limit. Your scores will suffer if the ratio is higher than 30%, but the lesser the better.

If you're a shopaholic or a bargain hunter, having a store card can easily entice you to buy things you don't really need. The more you utilize your credit card, the more debt you rack up, which ultimately affects your credit score negatively.

Store cards also provide deferred interest financing for six to twelve months on significant purchases like furniture. Deferred interest financing is not the same as an introductory 0% APR deal, even though it may sound enticing.

With a 0% APR offer, interest on your amount does not accrue while it is still in the promotional period; it only starts to do so once it expires. When using deferred interest financing, interest begins to accumulate on your balance as of the purchase date.

All of the deferred interest will become payable at once if you don't pay off your entire balance before the conclusion of the promotional period.


Alternatives to Store Cards

There are alternatives to getting a store card if it's not for you. Here are a few to think about


Rewards credit cards

Choose a credit card affiliated with one of your favorite retailers.

You gain points or discounts that you can spend at the store or elsewhere when you use the card to make purchases. Unlike store cards, you can use these credit cards wherever you like and still earn benefits.

However, you typically receive more points or incentives when you spend money at the merchant associated with the credit card.


Cashback credit cards

You receive rewards on a small portion of your purchases when you use a cashback credit card.

Your credit card account is normally updated once a year with the cashback you've accrued from purchases. For the first few months you own the card. In particular stores, certain cashback credit cards offer you a larger percentage of cashback.

The amount of a cash-back reward can range from 1% to 5% of a transaction, which would be $10 to $50 on every $1,000 spent on a cashback credit card.

Though this amount may be considered meager, it is better than using a credit card which comes with a charge of about 21%. If you don't pay off the entire credit card debt each month, you'll likely end up paying considerably more in interest than you did in cashback.



Cash is king. Paying for your items with cash frees you of interest rates from store cards, which further puts you in debt.

It also ensures that you are more frugal with your expenses, so you don't get caught up in a shopping frenzy and buy things you don't need. 



Final Word

If you pay off the debt on a store card within the interest-free period, there won't be any issues.

Consider converting your store card to a credit card with a 0% balance transfer fee if you do have a balance on it. This will help you to reduce your debt and stop paying interest.

Albeit, the ideal strategy is to steer clear of using store cards for long-term borrowing, unless the merchant has a 0% financing option. If you use the store card, big-box purchases, in particular furniture and large appliances, can get 0% interest for 24 to 48 months.

However, if you do rack up shop card debt, issues can arise quickly. The initial discounts and item costs will seem insignificant in comparison to the interest payments you might have to make.

Photo by Andrea Piacquadio


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