4 Things to Know Before Signing Up for a Retail Credit Card

Retail Credit Card balance transfer credit cards

Negosentro.com | 4 Things to Know Before Signing Up for a Retail Credit Card | You’re standing in the checkout line at one of your favorite stores. Just before you insert your credit or debit card to pay for your purchases, the cashier asks something along these lines: “Would you like to sign up for our store credit card? You can save 10 percent on your purchases today and five percent every time you visit.”

The prospect of earning a discount every time you shop is appealing. But, like any credit card offer, it’s important to understand the terms and conditions before signing up. Here are four things to know before enrolling. 

Retail Cards May Be Closed- or Open-Loop

First, you’ll want to explore the limitations of the card. Some retail cards are “closed loop,” which means you’re only able to use them at the store from which you received the card — or possibly a small group of stores owned by the same company. Other retail cards are “open loop” or available for use anywhere, functioning much like any Visa or Mastercard.

Particularly in the case of closed-loop cards, it only makes sense to proceed if you shop from that particular retailer fairly regularly.

Retail Credit Cards Often Carry Lower Limits & Higher Interest

Two potential downsides to store credit cards are low credit limits and high interest rates.

The lower a credit card’s limit, the less positive impact it can have on your credit score. Why? It does little to improve your credit utilization rate — or the percentage of your total credit you’re currently using. A low limit also means a high credit utilization rate (CUR) for that card. Here’s an example outlined by CNBC: Carrying a $270 balance on a store card with a $300 limit works out to 90 percent CUR. The ideal CUR is 30 percent or less; anything higher can weigh down your credit score.

Retail cards also tend to carry some of the highest average interest rates in the industry. If you end up carrying a balance on a card with a high annual percentage rate (APR) you may find yourself caught in a debt vortex. It’s advisable to charge only what you can afford to pay off each month, and to figure out how to get out of credit card debt as soon as possible if you do become overwhelmed by growing interest.

Store Cards May Have Looser Qualifications for Approval 

Applying for any credit card may feel downright intimidating, especially if your credit score has some room for improvement. Submitting applications for new lines of credit can also affect your credit score, so you always want to make sure you have a high likelihood of getting approved before even applying.

It’s worth noting store cards may have more lenient qualifications for approval than other offers. As The Balance notes, it’s usually relatively easy to qualify for retail cards, “making them a good option for first-time credit users or people looking to rebuild their credit.”

Store Credit Cards Can Build or Hurt Your Credit

Retail credit cards can be a wonderful tool for building or rebuilding credit thanks to their ease of approval. The best way to do so is to keep paying your monthly balance in full so as to avoid racking up interest charges or missing payments. 

Do your due diligence before agreeing to open a store credit card. As tempting as it can be to jump headfirst into an offer at checkout, understanding the terms and conditions ahead of time will help you understand what you’re getting yourself into.