Before You Sign Up for a Store Credit Card, Know What You’re Getting Into

NEW YORK — When Mykail James was 19 and working vacations at Victoria’s Secret, she signed up for a store credit card with a $2,000 line of credit.

After the school holidays, she realized she could no longer afford her monthly payments. After missing a few, she paid off her credit card and found that her credit score had dropped significantly, impacting her ability to access other types of credit.

“I didn’t get a credit card until I was 21, just because of that fear,” said James, now a financial expert and creator of The Boujie Budgeter. “Because of the impact it had on my credit and how hard it took me a few months to buy a car.”

As the holiday shopping season approaches, experts recommend being cautious about when your favorite store offers you a credit card.

“If you’re offered one at the checkout, most of the time it makes sense to say no,” said Ted Rossman, senior industry analyst at Bankrate.

According to the Federal Reserve, outstanding credit card balances reached $1.14 trillion as of August 2024, meaning credit card debt is a growing concern for millions of Americans. Bankrate found that the average store credit card has an average annual interest rate of 30.45%, which is significantly higher than the average APR of 20.78% for all credit cards. The APR is the amount of interest you’ll be charged if you can’t pay your balance in full each month.

Here are some expert recommendations to consider when purchasing a store credit card:

Don’t Say Yes to a Store Credit Card Right Away

Store credit cards are typically offered at checkout and provide customers with a line of credit that incentivizes them to spend more on the store’s products. If not managed properly, these credit cards can negatively impact your credit history.

When you’re offered a store credit card, Bruce McClary of the National Foundation for Credit Counseling recommends that you don’t say yes right away.

“Ask for something with all the details in writing that you can take with you and refer to later,” McClary said.

Often, store credit cards come with a promotion like 0% interest for a year or a discount on your purchase. And while that may sound appealing, it’s best not to rush into making a decision when you’re at the counter.

Understanding the details of the agreement

Before signing up for a store credit card, you should read the fine print, Rossman said, including how much interest will be charged if the cards aren’t paid in full and any possible late fees or penalties.

“Often these retail cards charge extremely high interest rates,” Rossman said.

Another thing to watch out for is deferred interest, which is when credit cards offer a promotion such as 0% for 12 months, but if the customer doesn’t pay in full before the promotion expires, they are retroactively charged for all the interest accrued during that period.

Do your research

If you’re considering getting a store credit card, McClary recommends doing some research on the retailer. Reading online reviews can help you identify whether other people have complaints about their store credit cards.

Additionally, McClary recommends asking yourself the following questions:

— How often do you shop at the store?

— Will you use the card enough to benefit from the rewards and discounts that come with it?

— Can you use another type of credit card?

— Can you afford to pay the card in full at the end of the month?

— How many credit cards do you have? Is it worth adding an additional line of credit?

These questions will help you determine if a store credit card is right for you or if you’d be better off with another type of credit card.

Best Practices If You Have a Store Credit Card

If you decide a store credit card is a good option, it’s important to pay your card off in full each month, McClary said. It’s also a good idea to only spend what you can afford to pay off in a single billing cycle, even if your credit line is higher.

“You want to avoid falling into that cycle of unmanageable debt,” McClary said.

To build healthy habits, it’s a good idea to set specific parameters for when you use your store credit card, James said. For example, only use your store credit card for purchases over $50. That way, you can reduce the amount you spend on your credit card and it’s easier to track your spending.

Keep your credit cards as a way to build a credit history

Store credit cards were once thought of as a tool to build your credit history if you’d never had a credit card before. That’s because retail credit cards have fewer requirements to be approved. However, in recent years, there’s been an influx of other credit cards that help people build their credit history, McClary said.

If you’re looking to improve your credit score, McClary recommends considering secured credit cards. These cards are considered safe because the lender typically requires a deposit and the credit line is lower than other credit cards. Once you’ve used secured credit cards and built up your credit report, you can upgrade to a traditional credit card.

Store Credit Cards vs. Buy Now, Pay Later

Since the “Buy Now, Pay Later” service has been available, retail stores have been offering it to their customers, along with store credit cards. It is important to understand the differences.

Store credit cards work like traditional credit cards. By filling out an application, you are requesting a soft inquiry on your credit report and if you decide to get the credit card, that line of credit will be reflected in your credit score. Buy now, pay later services are not reflected on your credit report and are typically tied to a specific purchase and are not a revolving line of credit.

“Companies like Affirm, Afterpay and Klarna have taken away from store credit card market share because they occupy a similar niche,” Rossman said.

Whether it’s store credit cards or BNPL services, customers need to proceed with caution to avoid getting caught overspending, which can lead to significant debt, he added.