How Store Cards Compare With Credit Cards
Store Cards Versus Credit Cards
Store cards are usually issued by merchants and retailers. The cards can also be called retail cards. Store cards may look like credit cards but they are not the same. While you can use your credit card to make purchase anywhere, store cards can only be used to make purchase at the store where it was issued or at their partners or affiliates’ stores. That is why it is being referred to as closed-loop card. However, there are few store cards that you can also use at stores, online or anywhere such as restaurants, grocery stores and gas stations. Such retail card will carry Visa or MasterCard logo on them. Retail cards that can be used elsewhere other than the issuing store are called open-loop cards. Retail cards are usually branded with the logo of the merchant or the retailer that issues the card. If you usually buy meals from restaurants, you can check restaurants near me now now to see some restaurants that offer gift cards.
Why Store Cards?
If you can only use your retail cards at a particular store, then why do people go for it? Well, this type of card is good for people that are used to doing most of their shopping at a particular store. The card usually offers high reward in term of discounts and points. Also, people with bad credit who find it difficult to get the regular credit card can resort to getting a retail card. This will help them rebuild their credit. However, if you want to use store card to rebuild your credit, you must use the card responsibly. Just like regular credit card, you will need to keep your credit utilization below thirty per cent. Before you sign up for a store card; it is important that you properly define your objective. Do you want to make purchases so as to enjoy huge discount? If you are chasing reward, you may likely exceed thirty per cent credit utilization. This may prevent you from building your credit score. The credit limits on retail cards are generally lower than the limits on credit cards.
Read Also: Credit Cards Application and How to Choose the Right One
How to Shop for Store Cards
If you are shopping for retail cards, you will need to consider the following factors.
- Accessibility: You understand that you can only use most of these cards at the stores where they are issued. For this reason, it is important that the location of the shop is easily accessible to you. If you need to travel some miles to get to the store, the discounts they offer may not worth it at the end of the day. It is expected that such store should be the one that you visit frequently.
- Versatility: I prefer open loop cards that can be used at stores, online or anywhere such as restaurants, grocery stores and gas stations. You can easily identify such cards by looking at their front. You will see Visa or MasterCard logo there.
- Bonus: The motivating factor for getting a retail card is the bonus it offers. You need to look for the percentage of discount it offers. Some stores offer category bonus. Are the product categories the type you will likely buy? Are there any limits to the level of bonus you can enjoy?
- Returns: Some stores will offer you the privilege to return the goods you bought after certain number of days if you are not satisfied with the item. The higher the number of days, the better for the card holders.
- No annual fee: Generally, stores don’t charge annual fee on store card. But you should not just assume that you are not going to be charged annual fee. You should make enquiry about this.
- Free shipping: The location of the store may be far from you. If you can buy online, distance may not be an issue. But it is good that they offer free shipping so that you don’t need to pay additional money on shipping or transportation.
- 0% APR offer: If you buy through the store card and you are not able to pay the full amount at the end of the month, some stores will give 0% APR offer. This can be tempting of course. If you know that you will not be able pay off the card balance while the 0% APR offer lasts, you may end up paying huge interest on the purchase.
Read Also: Excellent Credit, Not a Guarantee You’ll Get a Credit Card
Disadvantages of Retail Cards
Before you finally conclude on a store card, let me quickly direct your attention to some of its disadvantages. Some of the disadvantages have been mentioned above. But it is important that I highlight them so that you can understand the implication of your decision.
- Closed-loop: If the card is closed-loop, you will not be able to use it in another store that is different from the store where you got the card or its affiliates. If it is credit card, you will be able to shop around to compare prices so as to ensure that you buy your item at a good price. With closed loop cards, you will be forced to buy at the their prices. The product may be cheaper elsewhere.
- Category bonus: At times, bonus can be restricted to a category of products. Not everyone may like to buy the product.
- High APR: The APR on store cards is generally very high. It is only good for people who are sure that they will be able to pay off their card balances
- Deferred interest: 0% APR offer can actually be a bait. If you are unable to pay your full credit balance at the expiration of the 0% APR period, the interest rate will be applied on your entire purchase retrospectively. Unlike credit card where you will only need to pay interest on the unpaid balance only, store card will charge interest on your entire purchases for the period.
- Requires membership: Before you can actually enjoy the full benefits that retail cards or club cards offer, some merchants lime Amazon may request that may need to sign up for membership. This usually requires that you pay membership subscription. Unless you are making maximum use of the membership benefits, such card may not worth it.
- Low credit limits: The credit limit you may enjoy may be too low. Spending too much with the card can hurt your credit as you will easily exceed thirty per cent credit utilization. Nevertheless, if you pay your balances consistently over the time, the store may increase your credit limit.
Read Also: What to know about reward credit cards
With the above disadvantages, you may realize that reward credit cards may be a better option. The only thing is that, you will need to have a good credit score before your application for reward credit card can be approved.