What makes a good store credit card, and how to avoid bad ones

As holiday shopping gets underway, many of us will face the pitch at least once at the store register: “Would you like to save 25% on your purchase today by opening a store credit card?”

The specific perk or discount may vary, but retail clerks will generally follow a familiar corporate script, promoting their store’s card as a convenient way to finance purchases while saving you money. And the pressure can be strong.

“You’re checking out; there are 10 people behind you. In that process, what kind of information are you getting?” asks Wei Zhang, senior credit card program manager for the Consumer Financial Protection Bureau. “How much time did you have to process that information?”

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Why you might want them

Store credit cards tend to suffer from the same drawbacks: higher annual percentage rates than general-purpose credit cards from major issuers and lower credit limits, plus inflexible rules governing where they can be used and how rewards are redeemed. But because of those drawbacks, store credit cards are typically easier to get, which can help those with less-than-stellar credit.

“For folks who don’t have a credit history, or not a very good one, the retail store can be a place to get a card and build your credit history. But there’s a big if,” Zhang says. “They have to make payments on time. Otherwise, just like with any other credit card, late payments will make your credit worse.”

In other cases, a store credit card might be able to help you afford a large necessary expense, with a percentage discount or through a “special financing” offer. If you stick to the terms, you can avoid interest.

Those kinds of savings can be particularly helpful this time of year.

What makes a good store credit card?

Don’t dismiss an upfront discount right away. Even if it’s a one-time offer, a store card that grants you, say, 40% off a large, planned purchase could be a bargain. Other store cards deliver value in smaller but ongoing discounts: for example, free shipping or 5% off every trip to the store.

Beyond discounts, several large retailers offer store cards with rewards that rival those of general-purpose credit cards: for instance, 5% cash back on store purchases, plus 3% back in everyday categories, like dining or gas.

As with any credit card, pay your balance on time and in full each month if possible. If you carry a balance on a store credit card, the high APR will wipe out the value of any rewards.

Warning signs of a bad store credit card

Here are some common red flags:

• Inflated or confusing reward rates: Many store cards advertise eye-popping figures: "60 points per $1 spent" or "5% back in rewards." But those points are likely worth far less than the industry standard penny per point — sometimes as little as one-tenth of a cent. And that 5% back is not in cash but “in rewards” that can be used only within the brand.
• Complicated redemption: If a store credit card earns points, there may be a minimum redemption threshold. Other times, points are automatically converted into “reward certificates” — and then delivered by mail. Sometimes points don’t roll over; it’s use them or lose them.
• Risky "special financing" terms: Many store cards offer “no interest if paid in full” deals. But these are not 0% intro APR offers, in which interest is waived. These are deferred-interest offers, in which interest is still accruing in the background. If you don't pay off your purchase before the promotion ends, you’ll be charged interest on the entire transaction, retroactive to the date of purchase.