Evaluating Store Credit Cards

How many times have you approached the cash register at a retail outlet only to be accosted by the salesperson, who just can’t say enough positive things about their store credit card? The sales pitch is to be expected because store credit cards are extremely profitable for retailers. Not only do they make money when you use the card for purchases at their location, but also on the interest for your revolving balance.

At one time, store credit cards were largely associated with department stores such as Macy ’s and J.C. Penny’s. Now most large retailers have them, mostly because it tempts consumers to shop at their stores rather at their competitors’. This might seem like a great way to pay for the items you want, especially since their sales pitch makes the offer sound attractive, but you might be walking directly into a trap.

Unfortunately, store credit cards are often much more expensive than credit cards from financial institutions because they have high interest rates and annual fees. For example, the Target Visa card carries an interest rate as high as 22.24%, while you could get a credit card from Chase or Citi with a 7.99% fixed APR.

The reality is that store credit cards might come with nice perks, but their penalties are equally as severe. If you miss a payment or go over your credit limit, prepare for exorbitant fees to be tacked onto your account. The Kmart Card, for example, doesn’t have a grace period at all, so one day after the due date counts as late, which translates into a $25 fee.

Does this mean that you should avoid store credit cards entirely? Not necessarily. After all, many of these cards come with undeniably attractive perks. The trick is to investigate each credit card offer and compare them with similar offers at other stores. The worst thing you can do is sign up at the register without giving the card a second glance.

For consumers with poor credit history or no credit history, store credit cards can help you to build a positive credit file. They are usually easier to obtain than standard credit cards, even with higher fees, and if you pay your bills in full you don’t have to worry about 20% interest rates. Generally speaking, credit cards that are specifically for the store (can’t be used anywhere else) are the easiest to obtain.

Before you apply for a store credit card, ask for a copy of the terms and conditions, which should be available online or at the customer service desk of a nearby location. Look it over and pay particular attention to the APR (is it variable or fixed), the annual fee, the grace period and the finance charges. You should also determine the rewards for using the card, such as discounts on merchandise or cash back.

Comparison shopping is the best way to go with credit cards, so obtain the terms and conditions for several stores, then place them side by side. You might find that one has a higher interest rate, but if it has no annual fee it might be worth it. Make sure, as well, that there aren’t any hidden charges, such as inactivity fees.

Once you choose a store credit card, make sure that you only purchase items that can be paid off at the end of the month. Carrying a balance on a store credit card is just asking for financial hardship and will negate any benefits on the card, such as cash back or rewards programs. After you’ve used the card for six months and maintained a favorable payment history, call the credit department and ask that your interest rate be lowered.

You’ll find that many of the experts caution consumers against obtaining store credit cards, but as with anything else in life, the benefits and risks are related to how you use it. If you keep up your payments and avoid things like cash advances, a store credit card can save you money on purchases and possibly boost your credit rating.

TIP: If you do not like paying sales taxes at your local Wal-Mart then you may try shopping at online only retailers such as Amazon.com or BlueNile.com.

Top 9 Retail Store Credit Cards

1. Discover 5% More (great for extra bonuses)

2. Costco True Earnings

3. Bass Pro Shops

4. Best Buy


6. Disney Visa

7. Macy’s

8. TJ Maxx

9. HSBC Weekend Card