Are you thinking about applying for a store credit card but aren’t sure if it’s the right decision?
A store credit card can be a great way to lock in discounts and exclusive rewards. If you have a favorite store that you shop at regularly, opening a store credit card could possibly save you hundreds of dollars every year.
If you’re someone who is always on the hunt for the next big shopping reward, a store credit card might be for you. Read on to learn about the top benefits of applying to a store credit card.
What is a Store Credit Card?
Before we dive into the benefits of store credit cards, you first need to understand how they work. In many ways, a store credit card functions like a regular credit card.
The main difference is that a store credit card only works at one retailer or at a group of retailers. In other words, if you open a store credit card with Macy’s, you can’t use it to buy a pair of boots at Bloomingdales.
Store credit cards that can be used at a group of retail stores are also known as open-loop credit cards. These credit cards typically co-brand with a major card network, such as Visa or Mastercard.
For example, you can take out a GapVisa card and use it at any store that accepts Visa. You can then earn reward points that you can later use at Gap. These are different from traditional cards like the Tangerine Credit Card, which is issued by a bank instead.
The Benefits of a Store Credit Card
There are some major benefits you can reap by applying to a store credit card. Here are some of the biggest advantages:
One of the most significant benefits of store cards is that they offer big savings. Typically, when you open up the card, you’ll get 10 to 20 percent off on your initial purchase. And, you may even get a discount with every purchase you make.
For example, the Target RedCard gives shoppers 5 percent off on every single purchase. If you’re looking to save money on essential items such as toilet paper, shampoo, food, and medicine, this type of store card can be very beneficial.
Many store cardholders also get access to exclusive deals. For example, some retail stores will give store cardholders an additional 30 percent off on big retail shopping days, such as Memorial Day. You can pair opening a store card with this shopping cart trick for some major savings.
2. Teach Responsible Credit Use
Another major benefit of a store card is that it can teach you how to use a credit card responsibly. This is because spending power is limited, as you can typically only use the store at one retail shop.
Also, store cards tend to lack features that major credit cards hold that can lead to financial issues. For example, they don’t come with costly cash advances. If you want to learn how to budget your money and pay off debt in small amounts, opening a store card may be for you.
3. Act as a Short-Term Loan to Payoff Other Debt
When you open a store credit card, you typically get access to 0 percent interest for a certain time period (usually for at least 6 months).
If you’re confident that you can pay off the store card in full before the promotional period ends, opening a card may be a wise decision. This is especially the case if you have some large purchases coming up, such as furniture, appliances, or technology items.
Because you’re borrowing for free for a certain time period, you can put the money you’d normally be spending in interest to better use. For example, let’s say you plan to buy a new couch and chairs for your living for $2000. If you put the purchase on a store card, you can use the money you save in interest to pay down debt on your regular credit card.
4. Build Your Credit Score
In the US, the average credit score is 710, and most Americans have a credit score falling between 600 and 750.
If your credit score falls below 600, don’t panic. Opening a store credit card can help boost your score. If you make your payments on time, using a store card can help you build your credit.
A store card is also great for those who are trying to establish their credit. Unlike major credit cards, store cards come with low barriers to entry. This is especially useful for young adults who lack credit history and need some experience managing a credit line.
Downsides of a Store Card
While there are many benefits to opening a store card, it’s also important to understand the risks.
One of the biggest downsides to store credit cards is that they come with high interest rates. According to US News Research, you can expect your store card to come with a minimum APR of 21%. If you have a balance on your store card that you have trouble paying off, you may end up spending more money on interest than you’re earning on rewards and discounts.
Store cards also tend to come with very low credit limits. While the limit varies from retailer to retailer, sometimes, the limit is as low as a few hundred dollars. However, if you want to establish credit without the risk of going into deep debt, a store card is a great option.
Shopping Reward: Are You Ready to Open a Store Card?
Now that you’ve read this shopping reward guide, it’s time for you to decide if opening a store card is right for you. If the answer is yes, then your next move is to do some research on some of the best store cards.
Opening a store card is just one way to improve your finances. If you’re looking for more financial tips, check back in with our site.