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The Truth About Department Store Credit Cards

Credit Info The Truth About Department Store Credit Cards

If you’ve ever shopped in a department store, you know the story. Maybe you picked up a new set of cutlery, registered for a wedding or tried on some new dresses. Whatever the reason for your trip, the checkout process is always going to start the same way – “Have you signed up for our store credit card?”

The interest rates and perks may vary, but pushing a retail credit card is standard practice at many department, big box and outlet stores. They usually include a signing bonus or discount that can be applied to the purchase you’ve come for, making them a tempting offer for anyone looking to save a quick buck.

But what are the consequences of signing up for retail credit cards? In what ways do they differ from standard cards? Should they be approached cautiously, embraced fully or avoided entirely?

Why You Shouldn’t Use Them

Retail credit cards are tied to specific stores and often offer discounts when you sign up initially. Some also offer extra sales and coupons such as an additional 10% on top of another sale. But they can be a dangerous entry to the world of credit.

Unfortunately, the benefits and rewards of retail cards are often tied to the store directly, so you’re encouraged to spend more there to see the benefits. A sale at your favorite clothing brand might not entice you unless you have a store credit card that offers an extra 10% when you use the card.

Some store credit cards can also hurt your credit score, depending how you use them. Many offer lower credit limits than other types of credit cards, which can affect your credit utilization.

For example, if you have a credit limit of $500 on a department store’s credit card and spend $200 on a new duvet, your utilization percentage will be 40%. An ideal credit utilization percentage is 30% or less – any higher will negatively impact your credit score.

Store credit cards also often have higher interest rates than other cards, which will negate any discount you receive from using them. The cards are mostly aimed at short-sighted consumers, so those who take the time to weigh all the factors are less likely to be drawn in.

When to Sign Up

These cards aren’t completely useless. If you’re still building a credit history, a store credit card can be a good way to get your foot in the door. Their standards may be lower than other major credit cards and can prepare you for the “big leagues.”

Before applying for a store credit card, find out if they report to the three major credit bureaus – Experian, TransUnion and Equifax. These bureaus are responsible for your credit reports so if they don’t report to them, you won’t be able to build up a credit history.

Using a store credit card wisely can teach you how to be responsible, avoid temptation and build a credit history. After a few months, you may find yourself eligible for better rewards cards, including ones with large cash back or travel bonuses.

Stores that you frequent, like a superstore, can be good options in this situation. If you’re going this route to build credit, try to use a credit card from a store you’ll actually frequent.

The trick is to not spend more than you would have just because you’re receiving a small discount. That’s how these store credit cards really profit the companies they’re created by, and why they’re pushed so heavily in the checkout line. They know the money lost from the discounts they offer will pale in comparison to the extra business they’ll drum up by offering them – and now you do too.


Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Debt Free After Three.

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