Are store cards worth it?

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Store credit cards get a bad rap. It’s deserved in some cases because their interest rates are often much higher than general-purpose cards. They’re also much more likely to engage in the sneaky practice of deferred interest—offering a low (often 0 percent) teaser rate for a specific time, then charging retroactive interest if you fail to pay off the full amount by the time the clock runs out. But store cards aren’t all bad. Some of them actually offer strong rewards programs and other valuable perks.

Retail card perks

Several retailers offer a 5 percent rewards rate (in the form of cash back, points or store discount) when you use their credit card at their locations, including Amazon.com (and its subsidiary Whole Foods Market), Target, Walmart, Lowe’s, Best Buy, Wayfair, Gap and Ann Taylor. This is probably a higher return than you’d get with any other payment method. If you’re loyal to the store and you pay your credit card bills before interest accrues, it’s a great deal.

Loyalty pays off even more at some stores. Nordstrom gives its cardholders free alterations and early access to sales and other special events. Its biggest spenders qualify for a free annual in-home style consultation.

Macy’s has a tiered benefits structure which rewards higher spenders with more goodies. For example, if you spend between $1 and $499 annually on your Macy’s card, you get 2 percent cash back at Macy’s and exclusive coupons worth 25 percent off. Once you spend $500 per year on your Macy’s card, they throw in free shipping on all orders and bump your cash back earnings up to 3 percent. If you spend at least $1,200, that increases to 5 percent cash back (along with free shipping and those special coupons).

Weigh the opportunity cost

Depending on your shopping habits, a store card’s rewards might be comparable to a general-use rewards card. But there are other aspects to consider before applying. Applying for a credit card could lower your credit score because it’ll trigger a hard inquiry and may lower the average age of your accounts.

Let’s say a cashier pushes a card with a 10 percent discount off your first purchase. If you’re buying $100 worth of merchandise and you don’t shop there much, the $10 you’d save is probably not worth the credit score impact. But if you’re buying $5,000 worth of appliances, then a 10 percent discount could be very meaningful, and it might outweigh the sign-up bonus you’d qualify for on a general-purpose card. Just don’t sign up on a whim because you felt pressured at the point of sale. Make sure you devise a plan ahead of time

Another aspect to consider is the extra benefits you might get on a general purchase card. Extended warranty protection is a fairly common benefit on general-purpose credit cards but rare on store cards. If you have a card which adds two years to the manufacturer’s warranty at no cost, that might be the best one to use, even if it gives you fewer rewards than another card.

Card acceptance

Store cards are typically easier to qualify for than general-purpose cards (especially more premium rewards cards). For many people, a store card is their first credit card. This can be a fine starting point, but make sure you’re aware of the distinction between a store-only card and a cobranded card which carries a retailer’s name. Cobranded cards can be used anywhere the card network (e.g., Visa or Mastercard) is accepted, whereas store-only cards only work at that particular retailer’s locations.

Especially if it’s your only card, you’ll want it to be accepted as widely as possible. Some cobranded retail cards have very attractive rewards on certain categories outside their core businesses, such as:

Costco Anywhere Visa® Card by Citi: 4 percent cash back at eligible gas stations (up to $7,000 in annual purchases, then 1 percent) and 3 percent at restaurants and on eligible travel purchases, 2 percent at Costco and 1 percent back on other purchases.
Amazon Prime Rewards Visa Signature Card: 5 percent cash back on Amazon purchases, 2 percent at restaurants, gas stations and drugstores and 1 percent back on other purchases.
Capital One Walmart Rewards Mastercard: 2 percent cash back at restaurants and on travel
Bottom line

As long as you avoid interest, retail credit cards can help you save money, particularly if you’re loyal to the store.

Have a question about credit cards? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.

The information about the Costco Anywhere Visa® Card by Citi, Amazon Prime Rewards Visa Signature Card, and Capital One Walmart Rewards Mastercard has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.

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