When it comes to personal finance, establishing and building credit is one of the first (and most important) steps you can take. It can also be daunting though, especially if it’s your first time. With so many credit card offers to choose from when applying, it can be overwhelming and difficult to determine which card is right for you. This is especially true when an incentive is offered upon application. Enter: the store credit card.      

Store credit cards usually come with an attractive up-front offer or incentive, such as a special discount on a product or in-store purchase. While these discounts and offers do look enticing at first glance, there are many other factors you should consider when applying for a store credit card. There are many facets that hide beneath the surface of these up-front offers that you need to be aware of before applying for store credit cards. That’s why we’ve compiled a list of some of the disadvantages store credit cards come with that you should be aware of before you make your decision. 

High Interest Rates

This one is pretty self explanatory, but it’s one of the first things you should note when considering a store credit card. The interest rates on these cards are typically very high, and are also not adjusted for risk. This means that it doesn’t matter how good your credit score is, the interest rate will remain the same. For example, the national average interest in the latter part of 2019 was 14.87% according to Credit Karma. When it comes to store credit cards however, it’s not uncommon to see APR rates in the 20% or higher range. This should be one of the first things to consider when comparing store credit card offers. 

Low Credit Limit

Another detriment to store credit cards is the notoriously low credit limit that’s attached to them. This can be a disadvantage, because a balance can increase your credit utilisation rate. For readers who may not know, your credit utilisation rate is a percentage score that is calculated by taking the credit you currently owe and dividing it by your overall credit limit. It’s essentially a measure of how much credit you’re using, and this can eventually affect your credit score. So in the case of store credit cards, the risk comes when you have a balance. If you have a low credit limit and your balance is nearing your limit, this can reflect negatively on you when your credit score is calculated. Just another thing to keep in mind. 

Lack of Out of Store Rewards

It’s no secret that store credit cards often come with rewards like store credit or killer discounts on purchases in the store, because these are usually boldly advertised up front. What they don’t tell you however, is that the benefits advertised up front are usually the best thing about the card. Outside the store, benefits or rewards for these cards are almost nonexistent, especially when it comes to cash back. As a general rule, you should aim for a card that has a 2% cash back guarantee, and that’s rarely ever found in a store credit card. In truth, if you don’t pay your balance on time and in full each and every month, it’s likely that you’ll end up spending more on interest than you’ll be gaining in cash back. Additionally, these in store incentives can be a temptation for many to spend more than they would under normal circumstances. These two things can be problematic without careful planning. 

Limited Impact on Your Credit Score

One last thing that’s worthy of note when considering a store credit card is the actual overall impact that it will have on your credit score. The truth is, these credit cards don’t positively impact your credit score all that much. There is a high risk factor of lowering your credit score when dealing with these types of cards, but the reward simply just isn’t there. Sure, a positive payment history will always help your credit score, but major credit cards often have far more pull on your credit score than a store card will.  

Again, we’d like to reiterate that while there’s nothing inherently wrong with these types of cards, there are definitely many risks involved in using them. Oftentimes, store associates will present you with an option to sign up for a credit card in exchange for a killer discount on the purchase you’re making in the moment, but the benefits often end there. Knowing the risks before you’re put on the spot with an in-store offer is half the battle, so we hope that this list was beneficial and informative for you if you’re considering applying for a store card in the future.

Sources: Forbes, The Balance