Should You Sign Up for That Store Credit Card?

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Shop at enough chain retailers and you'll eventually be offered a chance to apply for a store credit card. Often it comes with a tempting discount on your purchase, and maybe even a promotional financing offer. But how good are store credit cards, and should you get one?

Benefits of Store Credit Cards

Store credit cards do have some upside to consider.

Get Discounts

Retailers usually offer a discount on your day's purchases when you apply for their credit card right at the register. If you are making major purchases, the savings could be significant. In addition, many store credit cards promise to send you coupons and advance sales notices throughout the year.

Earn Rewards

Another benefit that a store card may offer is a rewards program that lets you earn points every time you buy something from the store. Rewards are often in the form of credits toward future purchases. The best store cards offer rewards or discounts of up to 5% of the amount spent.

Build Credit

Retail credit cards typically have much lower qualifications for approval than other credit cards. If you have a poor credit score or a limited credit history, you might be able to qualify for a store credit card before you can be approved for other cards. In this way, retail credit cards can help you build a credit history from scratch, or rebuild your credit after financial setbacks. (See also: How to Use Credit Cards to Improve Your Credit Score)

Disadvantages of Store Credit Cards

Now, the downsides.

High APR

While it's easier to be approved for a store credit card, it will likely have less competitive interest rates than other cards. While the average credit card has a standard APR of about 15%, it's not uncommon to find store cards with rates in the high 20s or even the 30s.

Limited Use

A store credit card may not be part of a larger payment network such as Visa or MasterCard, either. If so, then you will only be able to use your card for purchases at that store and its website, not at other merchants.

Lower Rewards

Retail credit cards may not even offer very strong rewards programs. Some store cards offer rewards valued at just 3% or 4% of your spending, which is not much higher than you could expect from one of the most competitive reward credit cards. Also, a store card's rewards will usually be in the form of store credit, which is never as valuable as cash back rewards.

Opportunity Cost

You always have to consider the opportunity cost of applying for a retail credit card. Since you can't practically apply for every credit card you are offered (and even if you could, too many applications hurt your credit score), you have to consider if a store credit card is a better deal than the best offers available elsewhere.

For example, another credit card could offer you a sign-up bonus worth far more than a one-off discount on your day's purchases. And a store credit card rarely has a rewards program that's as good as the most competitive reward cards. Additionally, there are credit cards available directly from banks that feature 0% interest on new purchases. That's superior to the promotional financing offers available from most store credit cards.

When It's Okay to Sign Up for a Store Card

If you find that you are consistently buying from one particular store, it may be worthwhile to consider whether rewards and discounts from its store credit card will put a dent in your regular spending there. But don't impulsively agree to signing up at the register for a one-time discount. Smart spenders don't just consider their purchases carefully; they also choose their payment options wisely.