What’s the Difference Between Retail Credit Cards and Regular Credit Cards?
Rewards credit cards provide benefits for spending money anywhere the card is accepted, although purchases in certain categories (travel, groceries, gas, etc.) will earn higher rewards with certain cards. In-store credit cards, on the other hand, are intended for use at specific retailers and provide perks for purchases made there.
You have an almost endless amount of choices when it comes to credit card offers, so it’s important to define what you’re looking for before you decide which card is right for you.
Choosing a card with a low interest rate and minimal or low fees is important, especially if you plan to carry a balance. But many people also want a card that provides them with additional benefits, such as rewards or perks for spending. There are three kinds of rewards credit cards: cash back, general rewards points, and hotel or travel points.
In addition to rewards credit cards, there are some credit cards that cater to fans of specific stores, such as Kohl’s, Victoria’s Secret, Sam’s Club, Walmart, and Target, just to name a few. Store credit cards, also known as retail credit cards, are very different from regular credit cards, and there are pros and cons to choosing one.
In this guide:
Retail Credit Cards
Retail credit cards are issued by particular retailers. In many cases, such as with the Kohl’s Credit Card or Victoria’s Secret Card, you can use these cardsonly at the stores that issue them.
However, there are also some co-branded store cards you can use anywhere. For example, the Amazon Prime Rewards Signature Visa allows you to earn rewards points everywhere you shop, but you get bonus cash back for shopping at Amazon. If the store card is associated with a credit card issuer like Visa or Mastercard, chances are it can be used elsewhere — not just your favorite store.
Here are some of the key advantages and disadvantages of store credit cards:
Advantages Retail Credit Cards
- Valuable rewards: A store card will generally offer you more generous rewards at its store than a general-use credit card. For example, Kohl’s cardholders get access to exclusive savings, anniversary gifts, free shipping events, and more.
- Discounts for signing up: Store card offers often come with substantial discounts, sometimes as much as 30 percent off, for consumers who open a new credit account. If you’re making a big purchase, opening a store card to save on that purchase can provide huge savings.
- Building credit: Store cards can help you build credit if you make timely payments that are reported to the three major credit bureaus (Experian, Equifax, and TransUnion). It can sometimes be easier to qualify for a store card than other kinds of credit cards, too — so if your credit history has a few blemishes, you might still have access to this type of credit.
Disadvantages of retail credit cards
Some of the downsides associated with in-store credit cards include:
- Limited use: For many store cards, you can use the card only at the store that issued the card, or sometimes at partner stores. If you’d prefer a card that works anywhere, don’t get a store card.
- Low credit limits: You typically won’t be given a large credit line with a store card, at least not at first. With a lower line of credit, spending even a small amount on your card could raise your credit utilization to a level that adversely affects your credit score, albeit temporarily.
- High interest rates: Most store cards charge higher interest rates than other types of credit cards. A higher interest rate can result in bigger interest charges if you carry a balance from month to month.
Rewards Credit Cards
As previously mentioned, there are three kinds of rewards credit cards: cash back, general rewards points, and hotel or travel points. There are endless offerings for rewards credit cards, some of which are better than others.
Advantages of Regular Credit Cards
Benefits of rewards credit cards include the following:
- Accepted everywhere: Many rewards cards can be used in any establishment that accepts credit cards. Some merchants are more selective when it comes to American Express and Discover credit cards, but most major retailers will accept all four major credit card issuers (Amex, Discover, Visa, and Mastercard).
- Multiple ways to earn rewards: When you can use a rewards card for everyday purchases (e.g. at gas stations and grocery stores), you can earn more rewards more quickly.
- Flexible redemption: Although you may get more generous rewards with a particular retailer when you use a store card, the rewards or discounts can usually only be redeemed at that store. You have more versatility with a rewards credit card in the form of cash back, gift cards, statement credits, free travel and hotel stays, and more.
Disadvantages of Regular Credit Cards
There are some big downsides to rewards cards of which you should be aware:
- High annual fees: Not all cards come with annual fees, so you should shop around to make sure you aren’t paying fees for a card that’s not worth it.
- Higher credit limits: This can be a good thing if you’re responsible with your spending, but you could end up in a dicey financial situation if you charge more than what you can afford to pay off because you have more available credit.
- Rewards may not be as generous: It’s unlikely the rewards you earn will match the perks and benefits you can get at the retailer that issued your store card. If you do almost all your shopping at one store, you may be better off choosing that store’s branded card.
- Tougher credit requirements: Store cards are generally easier to qualify for than rewards credit cards, although there are some that cater to borrowers with below-average credit.
Store Card vs Credit Card — Which is Better?
It can be hard to know if a store card or rewards card is a better choice because the answer depends upon your unique situation. You need to evaluate your spending habits and financial goals to determine which one makes more sense for you.
Situations Where Store Cards Make the Most Sense
Store cards make more sense if you tend to shop at one particular store and if you’re OK with the more limited redemption options. You’ll also need to be willing to accept a lower credit limit, but may be able to qualify more easily.
If you anticipate a big spending trip, such as back-to-school clothes shopping, it could benefit you to sign up for an in-store card to save a large chunk of money upfront.
Situations Where Rewards Cards Make the Most Sense
If you want a card you can use anywhere as well as flexibility in redeeming rewards, opt for a rewards credit card. However, watch for fees and make sure you don’t overspend if you’re given a high credit limit.
There are plenty of rewards and store credit cards available to choose from. A store credit card might be a better option if you are afraid of going into debt but still want to establish a credit history. As store credit cards can only work at one retailer, you have the potential to earn better comparative purchase rewards and a good sign-up bonus while still using cash or debit for other purchases.
For most people, though, having a traditional rewards credit card is the best option. Even earning a minimal 1% rewards rate on all purchases is better than the monthly bonus offers from store credit cards, considering a household can only spend so much money at one retailer each month. Also, as online shopping becomes more popular each year, consumers are more likely to shop at the retailer that offers the best deal.
Of course, you might decide to have both store and rewards cards and simply use them for different purposes, which will give you the best of both worlds.
Author: Christy Rakoczy
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