The Costs of Store Credit Cards

Store Credit Cards

Do you know the costs of using a store credit card?

It happens almost every time you shop

Particularly if you’re making a large purchase.

The sales clerk starts in on the “Save 15% if You Sign Up Today!” patter, and it sounds awfully tempting. After all, 15% will certainly help the bottom line.

But store credit cards can be dangerous. Though they certainly have their place, it’s important to not make your decision about a store credit card on the spur of the moment. Here is some of the fine print that the sales clerk doesn’t tell you:

Interest Rates

The interest rates are through the roof. Regular credit cards have an interest rate of around 14%. But store credit cards average 25%. This makes no difference whatsoever if you’re going to pay off your balance each month, but of course the store is counting on the fact that most people don’t do that. And if you’re paying an interest rate of 25%, your 15% savings on that initial purchase really doesn’t help at all.

Surprising Credit Score Effects

Low credit limits can equal a low credit score. Most store cards have relatively low credit limits—generally about $1,000. That means that having one (or several) could negatively impact your credit score. Here’s why: your credit score is calculated based on the amount of available credit you have used. The rule of thumb is to have your statement balance be no more than 30% of your limit. With a $1,000 limit, it might only take one shopping trip to go over that 30% mark, and carrying that balance will hurt your credit.

Added Temptations

Having a store credit card can tempt you to spend money you don’t have. If you’re a regular shopper, it can feel like free money to use a store’s card rather than your regular credit card or cash to splurge on something. And the stores try to capitalize on that temptation by giving out discounts and promotions to card-holders. But you’ll still have to pay the bill once the shopping spree is over—and will the cute new boots or shiny flat screen still be such a deal when you’re forking your money over for the bill?

Using a Store Credit Card Wisely

With all that, it can make you wonder if it’s ever a good idea to sign up for a store credit card. Of course, it is possible to use store credit cards responsibly. And it can even help someone who is first establishing (or re-establishing) his credit. Because store cards tend to have looser credit requirements, people who might have trouble qualifying for a traditional card still have a way of building their credit history.

For example, my stepfather always likes to tell the story of how he established his credit (with no history whatsoever) when he was living on his own as a young 20-something. He needed a washer and dryer for his new apartment, so he went to a department store, signed up for their store credit card, and purchased the appliances. He wasn’t able to pay off the balance the first month, but he made sure he had it paid off within three months. After that, he had a stellar credit history and qualified for a car loan and a traditional credit card. And he’s kept his credit score up for the past 30-some years.

The important thing to remember with store credit cards is that the company wants you to make a split second decision without taking the time to think about it. Then they want you to keep coming in with the card to spend more and more. You are in charge of your finances, and there is no time limit on making good money decisions.

Photo by jelene

Last Edited: July 11, 2011 @ 3:53 amThe content of is for general information purposes only and does not constitute professional advice. Visitors to should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.
About Emily Guy Birken

Emily Guy Birken is a former English teacher and respected personal finance blogger. She lives in Milwaukee, Wisconsin with her engineer husband and two high-energy little boys. She has written two books: The Five Years Before You Retire and Choose Your Retirement. Emily's thoughts on parenting and life in general are found at The SAHMnambulist.


  1. webdoyenne says:

    I do think the Target card is worth it. You get 5% off your purchases whenever you use it there, and they donate a small % of what you spend to the school of your choice. My son’s high school has received more than $30,000 since the program started.

    BUT pay it off every month because, like many of these cards, the interest rate is up there with the the type of loan where Big Louie will come around and break your thumbs if you don’t ante up.

  2. I think you hit on one of the biggest long-term downsides: they keep sending you offers, discounts, and sales announcements, and so you’re constantly tempted to spend more.

  3. Depending on your shopping patterns and your discipline with paying cards off monthly I would agree with webdoyenne in her comment how certain cards can be worth it. Her example of course being Target — she consistently saves 5% and they donate money to her son’s high school. Pretty great deal in certain situations.

    That said I would agree that for the most part you’re much better off not having a store credit card. I do have ONE and as you said it has a super high interest rate (around 23% if I remember correctly). However the card I have also offers 0% financing quite often so I took advantage of it once to buy myself a new flat screen 😛

    I’m a sucker for new gadgets (my one weakness, other than that I’m pretty stingy with my money :P)

  4. Agree with this article completely! Some store credit cards come with no-interest finance offers, however, and used wisely (ie, only purchase what you would have purchased without the card in the first place), they can make sense for large purchases. For instance, a Lowe’s credit card is available to help finance the purchase of large appliances, and comes with a 6-, 12- or 18- month interest free payment offer. So long as minimum payments are made on time, and the balance is paid off before the offer expires (I calculate the payment to one month before the expiration), they can be a good deal.

  5. I just stick with my normal credit cards and make sure they have rewards programs on them. I am not tempted to sign up for retail store cards due to my already stellar cashback bonuses on my cards. However, you do indeed have to watch out for them–they can snare you!

  6. Jenna, Adaptu Community Manager says:

    I think getting a store credit is worth if for major purchases, TVs or grills, or a remodel of a kitchen. Other than that for clothes and such, not so much…