by Maxwell Payne

Created on: April 16, 2009

The advantages and disadvantages of store credit cards.

Store credit cards as cards offered by a particular store to shoppers of that store. They are very common in clothing stores and department stores.

You have probably seen applications for these store credit cards at the checkout of various stores, usually with a sign announcing a big discount off the first purchase if you apply.

Many people rush to sign up just to get the discount and this can be a waste if you rarely shop at the store, do this at every store, or don't pay your balances in full.

There are a few advantages to these store credit cards when used properly, but we'll start with some of disadvantages.

The cons of store credit cards.

Usually only useable at one store or chain.

Most store credit cards are exclusive to the store or the store chain. These cards often lack a co-branding' from a credit card processor such as Visa or Mastercard. The credit and billing is handled in house by the retailer that issued the card or by a private third party hired by the retailer.

If the card doesn't have a Visa, Mastercard, Discover, or AMEX logo on it, it is a store card only for use at that one retailer.

High interest rates.

Store credit cards usually come with extremely high interest rates when compared to standard credit cards. Carry a balance and you'll pay dearly for that new pair of jeans. It isn't uncommon to see store credit cards with interest rates of around 20%. Even with good credit, you might still get a unusually high rate.

Lowers credit scores initially.

While store credit cards can help your establish credit, they can lower established scores in the short term. Some creditors and lenders may view store branded credit cards less favorably than traditional cards when reviewing credit history. Plus some people may apply for a high number of store cards to get first time discounts, especially around the holidays.

All of these applications at once or in a short period of time can hurt your credit score and increase your credit risk.

The pros of store credit cards.

Discounts, special sales, and points to spend in store.

If you pay your balance in full every month and shop at the store on a regular basis, the store credit card could be a good deal. Some of the offers are exclusive to store credit card holders and the discounts may be far better than you'll get with regular rewards credit cards.

As long as you shop there regularly and pay in full monthly, a store credit card can get you discounts and perks at your favorite store.

Can help establish credit.

Store credit cards are often easier to get than traditional credit cards. This can vary from store to store but generally store credit card applications are impulse driven and the store wants customers to get approved. Cardholders are often loyal shoppers of the store.

For someone with no credit history, a store card can be the way to establish a credit history if another basic credit card isn't available due to generally good approval rates.

Cards issued through a companies such as Visa and AMEX offer more benefits.

If a store branded credit card is a true card, and not just store credit' it can act like a regular credit card. These cards can be used anywhere the processor is accepted and often come with rewards programs directed at regular shoppers of the store.

Many of these co-branded credit cards allow users to rack up points and rewards to use exclusively at the store whose name is on the card.

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