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You’ll Probably Be Offered a Store Credit Card This Holiday Season. Here’s Why You Should Say No

Young woman paying cashier with credit card in a clothing store

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We’ve reached the time of the year when many people will no doubt be hitting the stores in an effort to finish tackling their holiday shopping lists. When you’re making your way through the mall, you’re apt to come across some offers for a store credit card.

As the name implies, a store credit card is often one you can only use at a specific retailer (these are referred to as closed-loop cards). By contrast, usually, when you apply for a credit card backed by a major financial institution like Chase or Citibank, you can swipe it almost anywhere — the grocery store, restaurants, and more.

Opening a store credit card can be tempting, since it’ll often come with an attractive one-time discount as well as ongoing perks. But here’s why you may want to say no instead.

Don’t get too hung up on those benefits

Let’s say you’re spending $300 at a given retailer because it’s where you’ve found a large number of holiday gifts. You may, when you go to checkout, be offered a store credit card with a one-time offer of 10% off your initial purchase. That could result in a cool $30 in savings, so it’s easy to see why you may be tempted to say yes to that card offer.

And that’s not the only benefit you might reap with a store credit card. You might also get the option to rack up credit card rewards on future purchases that you can redeem for store cash.

But one thing you should know about store credit cards in particular is that not paying your balance in full can be very costly. Experian says that store credit cards tend to have higher APRs than regular, general purpose credit cards. So carrying a balance could mean losing a lot of money to interest.

Let’s say you’re forced to pay off a $300 balance on a store credit card over one year. If your card charges 27% interest, you’ll lose about $46. A regular credit card might charge 17% interest, resulting in about $28 in interest instead. That’s an $18 difference — which may be a lot if you’re someone who needs 12 months to pay off a $300 credit card charge.

Also, this is just one example. It’s conceivable that you might run up a $1,000 balance on a store credit card. The difference in interest charges there compared to a regular credit card could be even more significant.

Plus, any time you apply for a new credit card, a hard inquiry is done on your credit report, which tends to lower your credit score slightly. That may not be a big deal — unless, of course, you’re planning to apply for a large loan, like a mortgage, early in 2024. If that’s the case, then you might compromise your ability to get the financing you want — even if you have no trouble paying off your store credit card when your bill comes due.

Proceed with caution

Store credit cards aren’t disastrous for everyone. If you’re someone who’s never carried a credit card balance before, then it could pay to sign up for a store card this season to reap a lot of savings on a big purchase and benefit from ongoing rewards.

But only open one of these cards if you’re absolutely certain you can pay off your balance in full in the near term and the long term. Otherwise, you’re probably better off saying thanks, but no.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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