Personal Finance

Are Store-Branded Credit Cards a Good Deal or a Trap?

David Beren

Published: December 11, 2024 1:17 pm

Key Points

• Store-branded credit cards can offer big benefits like coupons and discounts. 
• These credit card types can also be huge interest traps. 
• Only apply for one of these cards if it’s somewhere you know you’ll shop frequently. 
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When it comes to store-branded credit cards, we have all been there as the cashier asks us if we want to save a certain percentage on our purchases by opening up a store credit. The discount can be enticing, but store-branded credit cards are often more problematic than you might immediately recognize. The limitations between infrequent use, limited perks, and low credit limits are some of the most important things to remember before applying for one of these cards. 

Benefits Of Store-Branded Cards

“Would you like 15% off today’s purchase by opening our store credit card?” As familiar as we all are with this line or some variant, it’s one of the most recognizable benefits. Many people opt into this pitch with a substantial initial purchase to take advantage of the discount, and the store has its hooks in you. 

Percentage Discounts

One of the most immediate benefits of a store-branded card is the ability to frequently shop at a particular location. For example, the Target RedCard offers a 5% discount at checkout, on every purchase, which can add up quickly. 

As someone who regularly shops at Target, I know that the 5% discount has added up to well over $1,800 in savings in 2024, a not-so-insignificant amount. The same argument applies to other retailers where you shop regularly and receive a discount, like Amazon or Walmart. 

In my case, the benefits of the Target card outweigh the downsides, and I don’t worry about interest because the card is paid in full monthly. 

Build Up Credit History

If you are starting in the credit world or need to re-establish a credit score, a store-branded credit card is easier to qualify for than a Visa or Mastercard. The caveat is that it often comes with a high interest rate, meaning you should only purchase what you can pay off monthly. However, if you can do this and control what you spend monthly, credit score boosts can benefit these card types. 

Bonus Rewards

Along with the initial discount when you sign up, retailers also offer bonus offers during the year to help further incentivize you to purchase. Sticking with the Target example, the company recently held a promotion for RedCard holders where you could receive 10% off all gift cards. This means I bought a $500 gift card for $450, earning myself $50 “free” dollars. 

Downsides of Store-Branded Cards

High APR

The most dangerous downside of a store-branded card is the high APR (annual percentage rate). Whereas most traditional credit cards offer an APR between 15 and 22%, store-branded cards can go as high as 30%. The cost of carrying a balance would easily outweigh any bonus or discount offers you would receive. 

Limited Use

Store-branded cards are limited in use as they are often tied to one retailer, and even if this retailer, like Target, has thousands of locations, you can’t use them anywhere else. Old Navy is one of the most immediate brands I can think of that offers a strong discount when you sign up, but how often do you walk into an Old Navy store? 

Low Credit Limits

When you apply for a traditional credit card, you can receive a high credit limit, upwards of $10,000 or $20,000, and sometimes even higher. Store-branded credit cards won’t give you anywhere near this kind of credit limit, as a few thousand dollars is what you can expect, which means you are limited in how much you can purchase, especially if you carry a balance. 

Ask Yourself These Questions First

Before you get sucked into a store-branded credit card offer, ask yourself these questions: 

1. Will I pay off the card’s balance every month to avoid accruing interest? 
2. How often do I shop at this store? 
3. Does the no-interest promotion I get with a card end if I don’t pay off a balance in full? 
4. Will I need a high credit limit to shop at this store regularly? 
5. Can I use another type of credit card with similar discounts, like Discover or Chase, which offer rotating 5% discounts? 
6. How many credit cards do I have now?