Do Store-Branded Credit Cards Make Sense? How to Make the Most of This Weird Card Type

When we think about credit cards and the best cash-back and travel options available, there is a good chance you won’t hear anything about store-branded credit cards. The biggest issue isn’t that these cards aren’t necessarily good, but their terms are generally less favorable than regular credit cards. 

There is no question that the hook for these cards is exclusive discounts, rewards and perks, often with big and shiny offers when you first sign up, including one giant initial discount. Unfortunately, these cards can usually be more trouble than they are worth, especially if you don’t use them right. 

The Upsides

Exclusive Discounts 

It should go without saying that the number one reason to sign up for any store-branded credit card is the sign-up discount. One of the biggest ways retailers can get customers to sign up for these cards is by offering big discounts on their first purchase. This discount amount is almost always posted throughout a physical retail store and on nearly every website page. 

For some brands, this discount can be as much as 40% off, precisely what Kohl’s offers customers with their first purchase. Other brands like Old Navy or Gap offer 20% off your first purchase, and regardless of the discount amount, there is no question you can find some significant savings. 

This is the hook that stores rely on to attract customers and get them to sign up. What’s challenging is that store employees will heavily promote this (and pester you), as a minimum number of sign-ups is often part of their daily job requirements. 

Notable Rewards

Once you move beyond the sign-up discount, store-branded credit cards work best to keep you around with any number of rewards. While the number of rewards varies, stores will undoubtedly try everything to keep you coming back. 

I say this as someone who is a RedCard Target holder and the 5% discount on every purchase has led to massive savings. It helps that this discount applies to both Target.com and in-store shopping, plus you can get an extra 30 days beyond the standard return policy for returning any purchase. 

I can personally attest to the benefits of the Red Card, as I have already saved $350 this year based on the 5% discounts and that most of my weekly grocery shopping takes place at a Super Target by my house. In this case, the Target RedCard benefits my family and my wallet by saving me at least $100 monthly, if not more. 

Similarly, the Amazon store card offers 5% back on every purchase when used at Amazon.com. The card also offers 5-15% off additional rewards on select/promotional items periodically throughout the year.

The bottom line is that these discounts are available at multiple retailers, including Lowe’s, Ross, Harbor Freight, and many more. 

Anyone who spends a lot of money shopping on Amazon every month will undoubtedly find that the 5% cash-back number can quickly add up. The average spending of Amazon Prime members annually is around $1,400, which means you can earn $70 in cash back every year, just for shopping as you usually would. 

VIP Exclusives

Another highlight of store-branded credit cards that has helped grow their popularity is the idea of VIP exclusives. These could take many forms, but they might include “early bird” specials, access to a new product (s) before “regular” customers, and potential freebies just for being a good customer. 

These practices help drive loyalty to the business and help keep customers coming back. Unsurprisingly, most general consumer credit cards don’t offer the same VIP access, so store-branded credit cards differentiate themselves positively using this tactic. Don’t forget free shipping, which is a perk reserved for store-branded card holders, something Target does with great success. 

The Downsides

High Interest Rates

The unfortunate reality with almost every store-branded credit card is that interest can be a downside if you don’t pay off monthly. In fact, this is arguably the biggest downside of every store-branded credit card with interest rates often eclipsing 30% or more. It goes without saying that at this interest rate, even a small balance can quickly spiral out of control. 

Take Bloomingdale’s store credit card, which has an interest rate of 33.49%. This is a massive red flag for anyone who can’t pay off their Bloomingdale balance monthly. Similarly, the Target RedCard has a variable APR of 29.95%, yet another significant number that can quickly put you underwater on your balance and make you feel like you’ll never catch up. 

For example, if you purchased $100 from Bloomingdale’s in March and didn’t pay it off in April, you’d immediately add an extra $33.49 to your bill just for carrying the balance an additional month. 

Low Credit Limits

Unlike the more traditional Visa or Mastercard options on the market where you can get a balance reflective of your credit history, store-branded credit cards often come with small limits. It’s not unheard of to see limits only in the hundreds of dollars, if not barely over $1,000. 

This might work depending on the store and how often you shop there, but it could also mean your credit utilization score is high, which could negatively impact your credit score. A high credit score is essential if you plan to buy a car or purchase a home soon. 

Limited Use

With a store-branded credit card, you can only use it at the store from which it was issued. Target cards can only be used at Target and Amazon, but this can make them feel very limited compared to general-purpose credit cards that can be used at hundreds of thousands, if not millions, locations worldwide. 

Questions You Should Be Asking

Before you consider taking out a store-branded credit card, there are several questions you should be asking yourself before going through the approval motions. 

1. Can you pay off the balance before any “bill due” date to avoid carrying over interest? If not, you should reconsider applying for a store-branded credit card. 
2. How loyal are you to the brand you are considering applying for? If you are someone like me who shops at Target three times a week, a store-branded credit card makes sense. However, it might not be worth it if you don’t shop there more than once every few months. 
3. Are the store-branded perks better than a cash-back credit card? Depending on the store and its perks, a 1.5-2% cash-back card might be more valuable. 
4. What is the sign-up bonus? Ask yourself whether the 20-40% sign-up discount is worth more to you on one purchase than a cash-back rewards card which might offer you $200 after 3 months. 
5. Do you need another credit card? The most important question is whether or not you need another credit card? For most people, the answer is resoundingly no.