Do you shop at department stores like Macy's, big-box retailers like Walmart or with online sites like Amazon? Retail store cards may not always offer the best value, but they can help people build or rebuild credit and offer significant savings for those who qualify for special financing. 

Another added bonus? Store cards often offer coupons and perks. Despite the benefits, however, store cards often have high interest rates and annual fees. In this article, we'll look at some of the benefits and drawbacks of using store cards to help you decide whether to add one to your wallet.

The advantages of store cards

Store cards aren't always a good fit for every retail situation. In some cases, paying by debit card, credit card, or cash is a better idea. However, there are plenty of benefits to using store cards. Here are a few reasons why you should apply for a card with your favorite retailer.

Exclusive offers and discounts

When you sign up for a store card, the retailer will typically add you to a mailing list for special offers for frequent shoppers and cardholders.


Easy credit access

It's usually easier for you to apply for a store card than for standard credit card offers because they typically offer lower credit limits and are more likely to accept borrowers with “fair” credit. I

Store cards as a credit builder

Learning about your credit score is the best way to identify strategies to improve your creditworthiness to lenders. Store cards can offer you an excellent opportunity to build credit  as some retailers report your payment history to the credit bureaus like Equifax, Experian, and TransUnion.

f the retailer reports your payment activity to the credit bureau, you could boost your credit score if you regularly pay your monthly account balance in full. If you use more than 30% of your credit limit, however, high utilization could bring down your score. 

The drawbacks of using store cards

In this section, we'll take a more detailed look at the drawbacks of using store cards that lead some people to avoid them.

High annual percentage rates (APR)

Store cards often come with high APRs. Some cards offer an introductory period during which you won’t incur  interest charges on outstanding credit. However, after the promotional period expires, you'll may face an APR as high as  25%.

To reduce the amount of interest you incur, pay off your entire outstanding balance on your store card at the end of every month. If you leave outstanding amounts in your account, the interest charges can  add up quickly.

Lower card-user versatility

“Open loop” cards like the Amazon Prime card can be used anywhere and typically have an issuer logo like Visa, Mastercard, American Express or Discover logo on the bottom-right of the card. In contrast, “closed-loop” cards like the Target REDcard can only be used with the co-branded merchant and its affiliates. These cards do not always have an issuer logo on the corner. 

Limits on rewards

While store cards often offer rewards programs, they are often limited to the retailer's stores or online shopping platforms. The offers from retailers may be generous, but they don’t typically extend beyond the brand. However, some open-loop store credit cards may qualify you for the bank or lenders' rewards cards program. 

Low credit limit

Both open-loop and closed-loop store cards typically have lower credit limits than traditional credit cards from banks and other financial institutions. Many retailers will increase your limit after a few months if you maintain a good payment history.

Store cards and your credit score

Both open-loop and closed-loop store cards typically have lower credit limits than traditional credit cards from banks and other financial institutions. Many retailers will increase your limit after a few months if you maintain a good payment history.

Store cards and your credit score

Some retailers report your payment history and account activity, while others don't. If you want to build your credit, make sure to apply for store cards that offer credit reporting to the bureaus.

If you have a bad credit score or no credit history, you may find it challenging to get a store card at some retailers. Store cards that provide you with a credit facility may check your credit score before offering you an account in most cases.

If you have a weak credit score or no credit history, lenders may turn down your card application. If you have bad credit, then you'll need to explore strategies to rehabilitate your credit before applying. 

What can you do if you have no credit history?

Most students have no credit history when starting in the workforce. Similarly, newcomers to the United States also lack a U.S. credit history. In the past, many of these people who face challenges getting a lease on an apartment, applying for a car loan, or opening a credit card account. But today, Nova Credit has built technology to translate credit data from countries like Australia, Canada, India, Mexico, the UK and more into a U.S.-equivalent score that newcomers can elect to share with U.S. companies when they apply for credit products here.

This means that newcomers to the U.S. can now apply for credit cards, apartments, loans and other credit products by using their international credit history. Once you use your international credit history to get a credit card or other credit product here, you can start to build a U.S. score. 

The takeaway 

For savvy shoppers, store cards have plenty of benefits, but you should check the card’s terms and conditions before signing up. If the store reports the card’s use to the credit bureaus, it could help you build your credit score. 

As with any other credit facility, spend wisely: try to maintain a credit utilization ratio of under 30% and make your monthly payments in full at the end of every month.

More from Nova Credit:
Credit cards for no credit

Credit cards for International students

Credit cards without SSN

American Express cards

How to build credit

How to use your international credit report to get credit in the U.S.