Should You Get a Store Branded Credit Card?

It seems like everyone has a credit card these days. When you go to the home improvement store, there’s a credit card. Ditto for the clothing store. Store branded credit cards attempt to cash in on your loyalty, and encourage you to buy using these cards, which can then be another source of revenue for the store.

Attractive Promotions

Just like credit cards from major bank issuers often come with promotional offers, store branded credit cards are also have promotions. Often, they are related to getting a certain percentage off your purchase, usually between a 5% and 20% discount.

In other cases, you might be encouraged to buy something big, and then enjoy no interest for 12 months. This is an especially popular ploy at home improvement stores. You buy an appliance, or make some other large purchase, and you are told you won’t have to pay interest.

These promotions are attractive at first, but they are often short-lived. Once you have taken advantage of the promotion, you left with a credit card that normally has a lower limit than a major bank-issued card, and a higher interest rate.

What about that No-Interest Promo?

One of the most insidious promotional deals that you get with many of these retailer cards is the introductory period. With many store-branded cards, the interest that you would have paid during the intro period is calculated. If you haven’t paid off the card by the end of the promotional period, all of that interest is capitalized; it’s added to your balance.

Another thing to watch out for is the “same as cash” deal that turns out to be a credit card. This is something increasingly popular with furniture stores. You decide you want to buy a piece of furniture. The store offers to finance you for nine months “same as cash.” You agree. Then, to your surprise, a credit card arrives in the mail. It’s already got a balance on it. Many retailers are starting to use this method of financing purchases. You make your credit card payments, and receive your 0% rate, but once the period is over, your interest is capitalized if you haven’t paid off the card. And, you’re stuck with another piece of plastic.

Store Credit Cards and Your Credit Score

Another consideration is the way store credit cards affect your credit score. It’s worth noting that credit scoring algorithms take into account where you are getting your credit cards from. A credit card from a major bank is considered the best credit card option. A credit card issued by a store, or retail branded, isn’t viewed as favorably. While it probably won’t completely tank your credit score, a store credit card can still have an effect.

Store credit cards often have lower credit limits, much higher interest rates, and other issues. If you do get a store credit card, it’s best to use it carefully, and make sure to pay the balance off each month. If you shop frequently at one store, it can make sense to maximize your rewards and shopping trips, but you want be careful to avoid extra costs.

Written by Tom Drake

Tom Drake writes for Stupid Cents and Canadian Finance Blog. Whenever he's not working on his online endeavors, he's either doing his "real job" as a financial analyst or spending time with his wife and two boys.

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