Are Store Credit Cards Bad?

Okay, we’ve all been there. You’re standing at the checkout line, pulling out your wallet, and the cashier says that famous line: “Do you want to save blah blah percent today by opening a store credit card?”

In the moment, it might sound like a fantastic idea. Save money? On something I’m about to buy anyway?

Before you make any decisions here, let’s talk about the ins and outs of store credit cards. Then you’ll know how they work so you can feel confident about how you spend your money in the future.

What’s the Difference Between Store Credit Cards and Other Credit Cards?

To start out, let’s talk about the similarities and differences between that store credit card and other credit cards.

What do store credit cards and other credit cards have in common?

• Both require preapproval.
• Both charge interest if you don’t pay your balance in full.
• Both offer rewards and incentives to get you in and keep you charging.
• Both can get you into some serious debt.
• Both affect your credit score.

(By the way, I’m anti-credit score, but I want you to understand that any kind of credit card you’re looking at will affect that number—store credit cards included.)

What’s the difference between store credit cards and other credit cards?

• It’s often easier to get approved for a store credit card.
• A store credit card’s application process is often quicker.
• Store credit cards usually have a higher interest rate.
• The typical credit card can be used wherever credit cards are accepted, while store credit cards are generally only accepted at that specific store (or its partner stores).

That’s a quick overview, but there’s still a lot to unpack.

How Do Store Credit Cards Work?

Store credit has been a thing for a long time—even longer than regular credit cards. We’re talking about the early 1900s. You could put things on your tab or hand over tokens, take your purchase home, and pay it off later. Things may look a lot different now, but store credit is still based on this same idea.

After signing up for a store credit card and getting approved, the customer gets a physical card in the mail. Like I said before, most of these cards can be used only in that store or another store owned by the same company. (Think of Gap, Old Navy, Banana Republic and Athleta as an example here. They’re all part of Gap Inc.)

The store makes money every time you buy something, obviously, because you’re buying something from them. And like any other credit card, you’ll get a bill every month, and you can pay in full—or make just the minimum payment and carry a balance. And the store will make even more money off you then because you’ll be racking up interest. (We’ll talk about how high the interest runs on store credit cards in a minute.)

Think back to that moment at the cash register I mentioned earlier. That cashier is probably asking if you want a store credit card because they get a nice bonus for getting people to sign up. The company wouldn’t offer that nice bonus (or make it so easy to qualify) if the card wasn’t such a good moneymaker for the store.

Also, did you know that every time you swipe a regular credit card, someone pays a fee? Yep! Most credit card companies charge transaction fees. So, when you sign up for and swipe that store’s credit card, you save them that fee. But do you know what saves everyone from paying a transaction fee? Cash. 

Is a Store Credit Card a Good Idea?

You guys, I’m not going to wait for some big reveal here. The answer is no. Because a store credit card is not a good idea. I have plenty of reasons why, but here are four of the most important.

1. A store credit card is incentive to spend more money.

Okay, that percent off might make it seem like you’ll spend less, but hear me out here: When you’ve got a constant incentive to spend money, you’re going to spend money.

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When you’re at the checkout line being asked to sign up, you’re thinking about saving on something you’re about to buy anyway. But the very next email in your inbox will be a deal on something you weren’t planning to buy.

But there’s a deal. But there’s a sale. But I get extra off because I’m a cardholder.

These are all the ways you’ll rationalize buying a ton of stuff you don’t need.

These store credit cards aren’t trying to save you money. They’re trying to make you spend more money. And in the long run, they can handle that percent off because they know you’ll end up buying more this way.

Don’t fall for it, friends. Just don’t.

2. One word: interest.

Plenty of people sign up for any kind of credit card, promising themselves they’ll pay off the balance every month. But listen—the truth is, those card companies won’t make you pay it off monthly because they don’t want you to.

Why? Interest!

I know a lot of store credit cards promise no interest or 1% interest at the beginning. But it won’t stay like that. Let’s talk numbers.

As of 2022 Q4, the average credit card interest rate is 20.4%.¹ That’s literally the highest it’s ever been. But remember, store credit cards usually run higher. I found one with a 25.99% APR! You guys, that’s so much. If you get even one month behind, you’ll be paying way too much for those boots you bought at a “discount” with your card. Save up and pay cash, people. Or use your debit card. Don’t fall into the interest trap.

Speaking of paying with cash or debit . . .

3. Owning is better than owing.

Hey, I say this all the time because it’s so true: Owning is better than owing. There’s so much satisfaction in saving up and paying for something you want, rather than getting it now and paying it off slowly and painfully over time.

I know it’s not the norm, but it’s time to get a little weird here, okay? Let’s be a culture of delayed gratification—not delayed payments. That kind of living will help you create a life of true contentment.

4. The “benefits” of a store credit card aren’t worth it.

Just because a store credit card seems quicker and easier to get than a regular credit card, that doesn’t make it a smart money decision. I mean, of course stores want to make it quicker and easier for you to give them your money.

And remember, this card is their way of encouraging you to spend more. They’re going to offer you special discounts and cardholder deals, but not because they’re trying to say thanks for shopping at their store. They’re literally banking on all the impulse buying you’ll do because they’re offering you a deal.

This is not about benefits for you. It’s about the store making more money.

Online Store Credit

I think it’s worth mentioning another type of credit that’s getting really popular. This method claims to help you manage your money by breaking the expense into “affordable payments.” I’m talking about those online buy now, pay later installment plans.

You’ve probably seen one of them in your online cart: AfterPay, Klarna, Affirm. Don’t be fooled—these are just debt packaged a little differently. They don’t come with a plastic card, but they’ve still got high interest rates and encourage you to spend money you don’t have.

So, skip it if you see the offer to pay for that pair of shoes over “four easy payments” at checkout. Make that one easy payment—paid in full.

A Better Way to Shop

I know you might think a store credit card at a place you already shop sounds like a great financial plan. But a store credit card brings way too much temptation to buy things you don’t even need. And the interest is not worth it. And any kind of credit card—store or otherwise—puts your money in someone else’s control.

It’s time for you to take control of your spending and your money. How do you start? By creating a budget with EveryDollar. This free budgeting app makes it super easy to tell your money where to go and not let purchases derail your goals.

And when the cashier asks if you want a store credit card, politely say, “No, thank you.” Then pay with money you have.