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What are store credit cards and when do they make sense?

Yahoo Personal Finance· Getty Images
Kat Tretina and Kendall Little
Updated 6 min read

After an hour of walking up and down the aisles, you finally find the perfect gift and make your way to the register. The cashier tells you that you can save 20% by signing up for a store card. That discount is significant, so what's the catch?

A store credit card is a card that is offered by certain retailers and allows you to earn extra bonuses or points whenever you shop at that store. But they can have high fees and rates and, depending on your credit and the card issuer, may have strict restrictions on their use.

A store credit card, often referred to as a retail card, is a type of credit card some retailers offer. They offer perks for shoppers, such as discounts on qualifying purchases, bonus coupons, or low-interest or deferred-interest promotions.

These credit cards can take two forms:

  • Store card: A store card can only be used to make purchases at the issuing retailer; you can use it to buy items in person or online through the retailer's website, but the card cannot be used anywhere else.

  • Retail network card: A retail network card is a type of credit card that a retailer issues, but the card is part of a larger credit card network such as Visa, Mastercard, or American Express. These cards provide perks when you use the card at the issuing retailer, but you can also use the card to make purchases elsewhere. They’re much more flexible and may require better credit to qualify. Some examples include the Prime Visa and Costco Anywhere Visa® Card.

For example, Old Navy is a popular retailer, and it offers two cards:

  • Navyist Rewards Credit Card — which offers 30% off the first card purchase and 5 points per $1 spent at Gap Inc. stores — is Old Navy's store card, and it can only be used at Gap Inc. brands such as Gap, Old Navy, Banana Republic, and Athleta.

  • Navyist Rewards Mastercard® — which offers 30% off the first card purchase, 5 points per $1 spent at Gap Inc. stores, and 1 point per $1 spent on all other purchases — can be used for purchases at Gap Inc. brands, but it can also be used anywhere Mastercard is accepted. You can use the card and earn rewards when buying gas, groceries, or other transactions.

  • They're easier to get: If you have poor credit or no credit history, qualifying for a traditional credit card can be difficult. Store cards can be useful if you're trying to build or rebuild your credit since they have less stringent eligibility requirements. And over time, they can help you improve your credit if you use the card responsibly.

  • You may be eligible for special discounts: If you get a store card from a retailer you regularly shop at, you may be eligible for special discounts and sales days throughout the year.

  • You can earn bonus rewards: If you're a loyal shopper with a particular brand, a store card allows you to earn bonus points on every purchase.

  • They may only be used at certain retailers: With most store cards, you can only use them at a specific retailer.

  • They may have high APRs: Store cards, especially those that can only be used at a specific store, tend to have higher-than-average annual percentage rates (APRs). APRs of 30% or more are common with retail cards.

  • Low credit limits: Store cards tend to have relatively low credit limits. With most cards, the maximum credit limit is below $3,000 — significantly lower than the limit you can get with other credit cards. With a lower limit, even relatively low balances can take up a significant percentage of your available credit and cause your credit score to drop.

Whether you want to build your credit or take advantage of bonus points and rewards on your purchases, here's how you can apply for a new store credit card:

  • Review your options: There are thousands of store credit cards available, so look for a card that's a good fit for you. Ideally, you should get a card connected to a retailer you shop at often, with low fees and rates and a strong rewards program.

  • Gather information: When you apply, you'll be asked for your Social Security number, birth date, mailing address, income, and employer details. You can save time by collecting that information ahead of time.

  • Apply online or in-store: You can apply for a store credit card in person at the cash register or apply for store credit cards online. With online applications, it typically takes just a few minutes to complete.

  • Plan that first purchase: Most store credit cards will give you a substantial discount on your first purchase after being approved for a card. Although it may be tempting to add items to your cart to get more savings, remember that store cards have high APRs, so only buy what you need and can pay off in full by the payment due date.

If you're considering store credit cards because you want to improve or rebuild your credit, a retail card isn't your only option. One of the following tools may help you boost your credit over time:

A secured credit card is an excellent option for those with no credit history or poor credit. Unlike traditional cards, which give you a credit limit based on your credit history and income, secured cards require a security deposit, and the deposit serves as your credit limit. For example, if you put down $200 as a security deposit, your credit limit with that card is $200.

Here are some examples of secured credit cards today and their required security deposit amounts:

Over time, secured cards can help you establish good credit if you make your payments on time and keep your balance low. As your credit improves, you may be able to transition to an unsecured card.

Credit builder loans are tools some credit unions offer to help members with poor credit or no credit.

With credit builder loans, you apply for a loan for a relatively small amount, such as $3,000 or less. The loan funds are deposited into a savings account and held for you. As you make payments, the credit union reports your payments to the major credit bureaus — helping you establish a positive payment history — and, once the loan is paid in full, the credit union releases the funds in the savings account to you.

Credit union credit builder loans tend to have low APRs, so the loan allows you to boost your credit and build your savings.

Although many rewards credit cards require good to excellent credit, some are specifically designed for those with poor credit. Rather than a store card, these cards can be used anywhere, so they may be a better option if you tend to shop at different places rather than being a devotee of a specific brand. Here are a few examples of credit cards designated as credit-building cards by their issuers:

However, these cards tend to have very high APRs and may have high monthly or annual account fees, so review the card terms and conditions carefully to ensure you know what you'll have to pay to have the card.

Can’t decide on a credit card? Check out Yahoo’s best credit card picks

Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn't include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.