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When you pull out your credit card to make a purchase, you may be offered an incentive to apply for a store card. Many people assume that these cards are the same, but as a normal credit card, but it’s not the case. Let’s discuss the differences between store cards and credit cards so you can decide if a store card is right for you.
Find the Best Credit Cards for 2023
No single credit card is the best option for every family, every purchase or every budget. We've picked the best credit cards in a way designed to be the most helpful to the widest variety of readers.
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Store Cards vs. Credit Cards
Store cards are credit cards that typically can only be used at specific stores. Retailers partner with banks to offer these revolving lines of credit to customers. Store cards encourage shoppers topurchase items on credittoday and pay them off over time. The advantage for the store is that you’re locked into their ecosystem; the advantage for you is that you might receive offers that are exclusive to cardholders.
The main difference between a store card and a credit card is that where a store card can usually only be used at a specific store, a credit card can be used anywhere that credit cards are accepted.
Where You Can Use Store Cards
There are two types of store cards—closed-loop and open-loop. Closed-loop store cards can only be used at specific retailers or retail chain families. Open-loop store cards have a Visa, Mastercard or American Express logo and can be used as a traditional credit card to make purchases anywhere credit cards are accepted.
Store Cards Still Charge Interest
If you carry a balance on your store card, you will be charged interest by the bank just like with a credit card. Not only that, store interest cards are typically on the high end. Just like with a credit card, you should try to pay off your balances in full each month to avoid paying interest.
It May Be Easier To Get a Store Card
Retailers often make it easy to apply for a store card compared to getting a credit card. Cashiers often encourage shoppers to apply for a store card at checkout with a promotion on their purchase. For example, you may receive a discount or special financing termson your purchase.
In many cases, you can apply by providing your identification to the cashier and entering your Social Security Number into the keypad. The application decision is usually instantaneous. You can also apply online at the retailer’s website or through the website of the bank that issues the store card.
Store cards are generally easier to get approved for than a traditional credit card because they don’t require credit scores as high as most major credit cards. As a result, some people apply for store cards to start building their credit.
Store Cards Work Like a Credit Card, With One Exception
Store credit cards are revolving lines of credit, just like credit cards. You have a specific credit limit and the ability to charge purchases against that limit. As you pay down your balance, your available credit increases and can charge additional purchases up to your credit limit.
The only difference: While a credit card can be used anywhere, a store card can usually only be used at the specific store.
Store Cards Can Hurt Your Credit
Like a standard credit card, failure to manage your store card properly can hurt your credit. You should keep your balance low relative to your credit limit (also known as utilization) and make sure that you pay on time every month. Protect your store card number just like you would a credit card number to ensure that unauthorized charges are not made.
By following these steps, a store card can help build your credit. If you miss payments or have high utilization, a store card can leave you much worse off than where you started.
Pros and Cons of Store Cards
Although store cards and credit cards are similar, they are not the same. Each type of card has pros and cons that make them appropriate for specific situations.
Advantages of Store Cards
There are several advantages that store cards offer that make them a better choice for some consumers.
- Easier to get approvedthan many credit cards
- Can often apply and get approved during a transaction
- Receive a discount or other promotion when you are approved
- Earn rewards that can be used at that store
- Pairs with the store’s loyalty program
- Can be a tool for building credit with responsible use
- Customers receive discounts, special financing and other exclusive promotions
- Most have no annual fee
Limitations of Store Cards
Even though there are advantages to store cards, there are some reasons why a store card is worse for consumers than a credit card.
- Most store cards can only be used at specific retailers
- Store cards tend to have lower credit limits which may result in higher utilization
- Average interest rates are higher on store cards vs. credit cards
- Deferred interest promotions can result in unpaid interest if not paid off in time
- Rewards earned are limited to the retailer
- Store card customer service is provided by the bank, not the store
Why a Credit Card Might Be a Better Option
Although there are several advantages to having a store card, a credit card tends to be the better option for daily purchases. Below are some popular benefits that may be offered by a traditional credit card. Review your card application to make sure you’re getting the benefits you are looking for.
- Those with good credit may benefit from higher lines of credit vs. a store card
- Lower interest rates on average
- Earn rewards or cash backon your purchases
- Bonus rewards when spending on eligible categories
- Generous welcome bonuses
- Ability to redeem rewards for higher value, like premium flights or five-star hotels
- Opportunity to pool rewards with household members
- Additional benefits such as hotel night awards, waived checked bag fees and airport lounge access
- Protection on purchases for returns, theft or damage
- Extended warranties on eligible items
Find the Best Credit Cards for 2023
No single credit card is the best option for every family, every purchase or every budget. We've picked the best credit cards in a way designed to be the most helpful to the widest variety of readers.
Learn More
Bottom Line
Store cards and credit cards are very similar at first glance. Each one can be used to make purchases to be paid off at a later date. Store cards can be easier to apply for and get approved for while providing exclusive discounts and promotions at participating retailers. However, most store cards can only be used at those retailers and often charge higher interest rates.
For some people, it makes sense to have both store cards for their favorite retailers and rewards credit cards for other purchases. This way you can have the best of both worlds—discounts and promotions at the retailer and a traditional rewards credit card for all other purchases. Either way you go, try not to keep a balance because any rewards you earn will be outweighed by the interest you have to pay.
As a seasoned financial expert with a deep understanding of credit cards and store cards, I can provide valuable insights into the concepts covered in the Forbes Advisor article. My extensive experience in the financial industry allows me to shed light on the nuances and intricacies of credit instruments, helping you make informed decisions about your financial choices.
Let's dive into the key concepts discussed in the article:
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Store Cards vs. Credit Cards:
- Store cards are credit cards that are typically limited to specific stores or retail chains.
- They are offered in partnership with banks and encourage customers to make purchases on credit with the incentive of exclusive offers.
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Types of Store Cards:
- There are two types: closed-loop and open-loop.
- Closed-loop store cards can only be used at specific retailers, while open-loop store cards carry major credit card logos and can be used anywhere.
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Interest on Store Cards:
- Similar to credit cards, store cards charge interest, and their interest rates tend to be on the higher end.
- Responsible financial management involves paying off balances in full each month to avoid interest charges.
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Ease of Approval for Store Cards:
- Retailers often make it easier to apply for store cards compared to traditional credit cards.
- Store cards may have lower credit score requirements, making them accessible for individuals looking to build their credit.
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Credit Building with Store Cards:
- Store cards function as revolving lines of credit, aiding in building credit with responsible use.
- However, mismanagement, such as missed payments or high utilization, can negatively impact credit.
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Pros and Cons of Store Cards:
- Advantages include easier approval, potential discounts, and rewards tied to specific retailers.
- Limitations include restricted usability, lower credit limits, and higher average interest rates compared to credit cards.
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Why Credit Cards Might Be Better:
- Traditional credit cards offer benefits such as higher credit limits, lower interest rates, and more extensive reward programs.
- Credit cards provide flexibility for daily purchases and can offer additional perks like travel rewards and purchase protections.
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Bottom Line:
- Store cards and credit cards serve similar purposes but with distinct advantages and limitations.
- Some individuals may benefit from having both types, using store cards for specific retailers and credit cards for broader purchases.
- Maintaining a zero balance is emphasized to avoid interest outweighing any rewards earned.
In conclusion, understanding the differences between store cards and credit cards is crucial for making informed financial decisions tailored to individual needs and preferences.