Case Study: Credit Cards vs. Store Credit Cards

Estimated read time: 8 minutes

Imagine it's the holiday season and you approach the register at your favorite retail store (favorite meaning the one that has what you need at the moment). As you place your stuff in front of the bright-eyed cashier, she cheerfully reminds you that you can use your store credit card to save an additional 10 percent on your purchase.

"Oh, you don't have a store credit card? Well, if you apply for one today, you can save 20 percent on your first purchase."

Now the wheels are turning. "Saving 20 percent today would be nice." With the prospect of tantalizing savings in the balance, the decision you make at the register can adversely affect your credit now and for some time to come. Then there's the pressure to buy now.

The bright-eyed cashier is trying to build a sense of urgency so you'll make a financial decision based on emotion, not logic. Will they convince you to apply for and use a store credit card? Here's what you need to know before making that decision.

Store Credit Cards vs. Credit Cards

When choosing a store credit card, it’s important to understand how they’re different from the traditional credit card. Store cards come with promises to save at your favorite store. Traditional credit cards are almost universally accepted. Depending on the card, they may offer rewards points for purchases that can be redeemed for items such as plane tickets or discounts at your favorite store. They tend to have higher spending limits than store credit cards and are not as easily attained by people with lower credit scores.

So what's a better choice – store or general credit cards? It depends on your present financial situation and personal preference. Below are some situations average buyers may find themselves in, along with explanations of what the best choices may be. Hopefully, we can guide you towards making the best financial decision for you.

Situation 1: You Shop at Your Favorite Store & Pay Your Bills On Time

Say you love to shop at Target. You go there all the time. You buy groceries every week, as well as clothes and other various items. You even buy clothes online. In this case, a Red Card might be a good choice, with one caveat.

Whether you shop Target, Amazon, Old Navy or any other retailer on a regular basis, it's critical that you pay your credit card balances promptly. Store credit cards often have a much higher interest rate than regular credit cards (over 20%). If you a make purchases and then go a month or more without making a payment, you will be paying steep finance charges.

For example, say you use Targets RedCard to purchase:

  • 1 Coleman Camp Propane Grill (89.99)
  • 1 SS Tool Set 17pc from Room Essentials (a grill tool set costing 19.99)
  • 1 Quik Shade Expedition EX100 (a canopy tent costing 89.99)

With a seven percent sales tax, these items total $213.97.

Here's what they charge:

Target's REDcard has a 23.15 percent interest rate and charges a $37 late fee for missing a payment.

If you pay off the balance before the end of the billing cycle, you're fine. However, lapses in payment can add up.

After 1 missed payment (and no other purchases), the balance is $255.04.

Monthly Interest = Balance x (APR / 365) x Number of Days in Billing Cycle

The monthly interest charged is estimated to be $4.07. If you miss one month's payment, interest is added to the balance along with a $37 late fee. Now the balance is $255.04.

This is assuming that the interest is compounding monthly, and no other charges are added to the card. ome cards compound interest on a daily basis. Make sure you read and understand the terms of your card and be sure to pay balances promptly.

Best Option: Store Credit Card (If you pay the balance)

Situation 2: You're Trying to Establish or Repair Credit

Typically, store credit cards are easier to procure than regular credit cards if you have poor or little credit. While this comes at the price of a much higher interest rate, it gives you an opportunity to establish credit.

Here's how this works:

  • Get a store credit card from a place you shop frequently.
  • Make a few purchases every month like you normally would, but use the store card.
  • Pay off the balance each month.

Then you'll reap the benefits of a growing credit score. And by using a store card, you'll likely to save a little on the products you buy. It's important to note that this is not a quick process and depends on your ability to make payments on time. You'll also want to keep your credit utilization rate (the amount of credit you are using vs. what's available to you) low. These factors make up nearly 60 percent of your credit score.

Even though delinquencies remain on your credit history for seven years, making payments on time will help improve your credit score over time.

Best Option: Store Credit Card

Situation 3: Your Income is Inconsistent

Are you in sales, a freelancer or business owner and operator? Beware of store credit cards.

With high APR's, having the funds to pay off these credit card balances consistently becomes critical. Otherwise, you may be facing a mounting credit card bill.

According to, the average sales professional makes $30,000 per year. If your per month revenue varies, this means the average sales person makes around $2,500 per month. Some months this amount is higher, and in others, lower.

In leaner times, maintaining a store credit card with a high interest rate can be difficult.

Instead, consider a regular credit card with a lower APR. It's always important to pay off your credit card balance, but with a regular credit card, the impact of a bad sales month won't hurt as much.

Best Option: Regular Credit Card

Situation 4: Rewards Points are Important to You

Yes, you can get rewards points with a store credit cards. But a regular reward credit can provide you with a much broader set of rewards for your purchases.

Cards like Chase Sapphire Preferred Card provide points on travel and dining purchases and have affiliations with travel rewards programs like United MileagePlus and Marriott Rewards.

If a card that provides cashback is important, the Discover It Card may work for you. Cashback cards give you a percentage of your cash back each time you use them.

Find the best Reward Cards here

Store credit card rewards are typically restricted to the retailer granting the card. Although they do provide certain perks, unless you only want rewards for one retailer, a regular rewards card might be better.

Best Option: Regular Credit Card

Situation 5: You Love a Good Deal

This is where you have to be a little honest with yourself. If you can't resist a good deal, whether you need the item or not, you should likely avoid store credit cards. Why? You'll be more likely to purchase items you don't need, just because you have that store's card.

Store credit cards are designed to encourage customers to buy more of their products. From the "10 percent" for applying for a store card to countless emails promoting "special members only" perks, the idea is to make sure you continue to buy.

According to, a personal finance website, retailers even have a tendency to increase your credit limit when you reach a certain threshold of purchases per month. This means you're more likely to pay 20+% interest on items that you don't need.

Best Option: Regular Credit Card

Situation 6: You Don't Want to Risk Damaging Your Credit

It's true that any type of credit card can damage your credit. However, there are a number of ways that a store credit card can do more damage to your credit than any discounts they may provide.

Remember: Store credit cards have an average APR of above 20 percent.

And it goes further than that. Many store credit cards offer low credit limits to start. Using your allotted credit increases your credit utilization rate (the amount of debt you carry versus credit extended), which hurts your score.

For example, if you have a card with a $200.00 limit and you spend $100.00,your credit utilization rate is now at 50 percent. The recommended rate? Below 30 percent.

And applying for multiple cards?

Each application leads to a hard inquiry about your credit, which may also damage your score. This can be especially painful if you're applying for a mortgage or trying to build your score.

Best Option: Regular Credit Card

Bottom line, general credit cards allow you to make purchases at virtually any retailer, provide a greater range of rewards and have lower interest rates than store credit cards.

The greatest benefit of store credit cards lies in the discounts provided to consistent shoppers. Even with that said, it's critical that shoppers carefully watch their spending and be sure to not carry balances. Not paying credit cards bills will damage your credit no matter what you present at the register.