Read This Before You Use a Retail Credit Card


By Matthew Frankel, The Motley Fool

Is a retail, or store-branded, credit card a good idea? The short answer is, it depends.

Retail credit cards, on average, charge significantly higher interest rates than non-retail credit card products do. However, many also offer rewards, discounts, and financing programs that other credit card products simply don’t match and can be worth a look in certain cases. Here’s what you need to know about retail credit cards, and the right and wrong ways to use them.

Woman using a credit card at an in-store payment terminal.

Most store credit cards have high interest rates

According to a recent survey from that examined 65 retail credit cards, the average retail credit card APR is a sky-high 24.99%, which is much higher than the 16.15% average APR for the overall credit card market.

Some cards have even higher interest rates. Brandsource’s credit card charges 30.49%, making it the most expensive retail credit card in the survey, and there are several others just under the 30% mark.

Even worse, the majority of retail credit cards charge the same interest rate to all customers, regardless of their creditworthiness. In other words, if someone with a FICO score of 820 gets a Brandsource credit card, that person will pay the same astronomical APR as someone who gets approved with a 650 FICO score. Just 28% of the 65 credit cards surveyed assign APRs based on creditworthiness.

But there are some perks you might not find elsewhere

To entice consumers to use these products, retail store cards often offer some excellent perks you can’t find with non-retail credit cards. And thanks to the high level of competition in the industry, many retail cards have added value to their reward programs recently.

Many store-branded credit cards offer introductory and/or ongoing discounts, to name one example. Most readers have been to a department store and heard a pitch that sounds something like “How would you like to save 20% on today’s purchase by signing up for a credit card?”

About 80% of store cards offer some kind of rewards program, and these can often be more generous than non-retail credit cards’ offers. For example, one of my retail-branded credit cards gives me 6% back in rewards on every purchase and regularly has 10% reward promotions.

Finally, and perhaps most valuable, there’s deferred-interest financing, which about 40% of the retail credit cards in’s survey offer. While deferred interest isn’t exactly the same thing as 0% interest, this can still be a valuable perk, especially since deferred-interest periods up to five years aren’t uncommon.

When you should (and shouldn’t) use a store credit card

Because of their higher interest rates, it’s generally not a smart idea to use a retailer’s credit card for a purchase you can’t pay off right away, or before a deferred-interest period expires.

“The average retail card rate is so absurdly high that folks who will carry a balance should look elsewhere,” says senior industry analyst Matt Schulz. “Even if you get a 10% or 15% discount on what you’re buying with that card, the math can work against you in a hurry if you don’t pay your bill in full at the end of the month.”

If you plan to carry a balance, you’re probably better off with another credit card. You can find a standard credit card with an excellent 0% intro APR offer or an excellent introductory bonus that probably has a lower APR than you could obtain from a retail credit card.

On the other hand, if you pay off a balance in full, or during a deferred interest period, store credit cards can offer some pretty good deals. As a personal example, after I bought my current house, I used a Rooms-to-Go credit card to finance some furniture and got 60 months of deferred interest financing. Even the best 0%-intro APR offers from non-retail credit cards don’t come close to this type of deal. The same can be said for certain retail card reward programs and discount offers if and only if you don’t carry a balance that accumulates interest.

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