Q&A Video: 3 Things to Know Before You Apply for a Store Credit Card

John Ganotis

John Ganotis | Q&A Videos

Dec 16, 2015


Hi I’m John Ganotis from CreditCardInsider.com and today’s video is:

Three things you should know before you apply for a store credit card. What do I mean by a store credit card? Well, a credit card that you get at a retail store, like Best Buy, Victoria’s Secret, Walmart, Amazon, one of those.

1 – Restrictions on where you can use it

The first thing to know before you apply for a store credit card is that you may only be able to use it at that store. If it doesn’t say Visa, MasterCard, American Express, or Discover somewhere on the actual credit card or on the application for the credit card chances are you will only be able to use it at that one brand of store. You won’t be able to just use it everywhere that credit cards are accepted.

This is especially problematic if it’s your first and only credit card and you want to be able to use it other places. Some stores, like Walmart for example, will have two different versions of a card.

So Walmart has the Walmart Credit Card, which can only be used at Walmart and Walmart-affiliated stores, and then they also have the Walmart MasterCard, which can be used anywhere MasterCard is accepted. And that’s pretty much everywhere that credit cards are accepted. So they’re two very similar cards but they have different restrictions on where you can use them.

2 – Low credit limits

The second thing to know before you apply for a store credit card is about credit limits. Store credit cards tend to have lower credit limits than cash back or rewards cards that you might get from a big bank. Why is that important to you? The percentage of your credit limit that you use each month is a big factor in your credit scores.

So let me give a quick example. Let’s say I apply for store credit card and it might be typical to get approved for a $500 credit limit. So I go out and spend $250. I’m now using 50% of my available credit on that card.

Now, on the other hand, imagine another scenario where instead of applying for the store credit card I apply for a cash back card from a big bank. Over there, I might be more to likely get approved for a $1000 credit limit. Now if I go out and spend that same $250, I’m only using 25% of my available credit.

Now, the way that credit scoring models work, the closer I get to maxing out my card, or the more I use relative to my credit limit on the card, the worse it is from my credit scores. So credit scoring models like to see that 25% scenario more than that 50% scenario. So if you have low credit limits on your cards, like store cards tend to have, you could potentially damage your credit very easily by getting up to the 50, 60, 70, 80, 90 percent utilization.

3 – Watch out for the terms

The third thing to know before you apply for a store credit card is that in general store credit cards have worse terms than cash back and rewards cards that you get from a big bank or a credit card that you can get from your local credit union. I already talked about credit limits, but another thing that retail store credit cards tend to have is a higher interest rate relative to other types of credit cards. So, if you can’t pay off your full balance in a month and you have to roll it into the next month, chances are you’re going to be paying more with a retail store card than you would pay if you just had a credit card through your bank or credit union.

Another thing to look out for with store credit cards is special financing offers. So some retailers, like I think Best Buy had a deal like this, where you can get something and pay no interest for a year, or they market it that way. But, if you don’t pay off that entire purchase by the end of that special financing period, then they might charge interest all the way back to when we first got the purchase, so when you first either got the card or made the purchase on the card or however the terms of that card work.

So, watch out for special financing deals, especially on store credit cards. You should always be reading the terms of a credit card before you apply and anything additional that you get about how the card works once and get approved for card, but be especially careful about special financing deals.

Is a store credit card ever a good idea?

So I’ve talked a lot about things you might want to look out for when you’re getting a store credit card, but there are some situations where a store credit card can be very beneficial and rewarding. There are two things that I think need to be true in order to actually make the most out of a store credit card.

1 – You’ve done your research

The first thing is that you’ve done your research. You’ve looked at all the terms of the card you’re considering, you understand them, you’ve looked at the reward structure that that store offers and you understand that, and you’ve also thought about how often you shop at that store and will shop at that store in the future to consider whether that rewards card will be beneficial to you.

The other thing to keep in mind, especially if you don’t have any credit cards yet, is what your current mix of credit cards looks like. If you already have, let’s say a cash back card, that you can use to earn cash back everywhere you shop, then it might make sense to get a store credit card as a second or third credit card especially if you shop at that store a lot and you know you can make the most of the rewards.

2 – You’re using the store card responsibly

The second thing I think needs to be true in order for a store credit card to make sense is that you’re using the card responsibly. And what I mean by that is that you’re paying off your balance on time, in full, every month. This is important for store credit cards or all other types of credit cards.

If you’re not paying off your full balance, the rest of it’s going to carry over to the next month. And, you’re probably going to get charged interest on that. The value of your points, or cash back, or free pairs of underwear that you earned from this store credit card or your rewards credit card can very quickly cancelled out by the cost of all this interest that you’re paying by carrying a balance. So, with any type of credit card you get, make sure you’re paying it off on time, in full, every month.

So I hope this video has helped you understand more about store credit cards and how they differ from other types of credit cards. If you want to learn more about general use rewards credit cards that you can use any where for cash back or points check out our article “best rewards credit cards.”

I’m John Ganotis from Credit Card Insider. Thanks for watching this video, and have a great day.

Was this helpful?

The Insider

Brendan Harkness
Review of the Best Western® Rewards MasterCard®
Brendan Harkness | Oct 21, 2016

The Best Western Rewards MasterCard provides 13 points for every dollar you spend with Best Western, along with a variety of extra perks and benefits.

Read More
Brendan Harkness
Review of the Upromise® World MasterCard®
Brendan Harkness | Sep 28, 2016

The Upromise World MasterCard offers up to 10% cash back at select retailers, and you can redeem your rewards directly to your college fund or student loan.

Read More
Brendan Harkness
Review of the Ultamate Rewards Credit Card and Ultamate Rewards MasterCard
Brendan Harkness | Sep 22, 2016

The Ultamate Rewards Credit Card and Ultamate Rewards MasterCard both offer 2 points per dollar at Ulta, along with member-only rewards and benefits.

Read More

Trusted Credit Information

Putting People First, Always.

We are advocates of the responsible use of credit, building and managing your credit history, and making informed decisions when selecting a credit card.