Retail store credit cards sure seem like a great idea. Store clerks offer bait their shoppers with a deal that sounds something like this:

“Would you like to save 15 percent on your purchase today?”

Heck yes! most shoppers think.

“All you have to do is apply for a retail store credit card,”

continues the clerk.

Promotional offers like this are all too common. Just about every major store and gasoline chain offers retail store credit cards.

Unfortunately, store-specific cards will almost always hurt your credit score and your wallet.

Let’s start with your wallet. Sure, you’ll save 10 percent—sometimes even 15 percent—when you sign up for the card, but what happens after the one-time discount?

You’ll pay interest, unless you pay this and subsequent bills immediately. And let’s face it: There will be subsequent bills. Why would retail stores promote these cards with discounts unless they know they can eventually make money?

Retail stores know that sooner or later, you will use the card again. Maybe you are in the mood for a little retail therapy. Having retail cards in your wallet will increase your ability to make an emotional busying decision. Plus, you will be more tempted to buy things from places where you don’t have to immediately part with your cash.

So most likely, you’ll pay interest that far exceed the amount of that one-time discount. This is in the retail store’s best interest, but it’s not in your best interest.

Here’s reason to steer clear of retail store credit cards: Your credit score is going to drop, which means you will pay higher interest rates on future loans and credit cards.

One of the best ways to build credit is to responsibly manage three to five major credit cards. This includes American Express, Discover, Visa, and MasterCard, and it also includes cards from places like Chevron and Macy’s.

Three to five is that “sweet spot” where the credit bureaus can judge whether you can responsibly juggle numerous accounts. But it limits your liability. If you have more than five, the credit bureaus worry that you can get in over your head pretty easily.

One of the problems with retail cards is that they usually cause a person to exceed the three-to-five rule. If you are limited to three to five credit cards, why waste one by applying for a card you can only use at one place? You can’t use your Gap card to book a hotel room, so most people who carry retail store credit cards end up with well over five accounts.

These cards hurt your score for two other reasons:

  1. Every time you apply for a retail store credit cards, you add a credit inquiry to your credit report. This causes you score to drop a few points.
  2. Keep your revolving accounts active is important, and retail cards are really hard to keep active. After all, you cannot buy a lawn mower from Sears every month. Inactive credit cards don’t tell the credit-scoring bureaus anything about your ability to pay bills on time and manage debt, so they don’t help your credit score at all.
Philip Tirone is the founder of the 14-Day Credit Challenge. If you have questions or concerns about your credit score, I encourage to check out Phil’s free credit webinar.

Creative Commons License photo credit: Fred Dawson


Get the Money Dominating Toolkit

  • 6 Tools to Get Your Money Back on Track
  • The Ultimate Goal Achiever Workbook
  • 2 Free Chapters to my Best Selling Book
  • 21 Days to Destroy Your Bad Habits Worksheet

Comments | 8 Responses

  1. says

    On the whole, I am pro-credit cards, but these store-branded charge cards I don’t really like. Like you said, it’s generally a one-time savings, and some other promotions sprinkled in throughout the year. However, and I mentioned this on another blog the other day, if you are making a large purchase such as furniture, appliances, a tv, etc it can work to your advantage. Assuming you have the money (and if you don’t then you shouldn’t be buying anything in the first place) some stores like Sears, Best Buy, Rooms 2 Go offer long-term interest free financing that would enable your money to keep working for you longer. After all, if you are responsible, why wouldn’t you want to keep more of your money for a longer period of time while making smaller payments over the course of this interest-free period?

    • says


      I agree with you on many points. For those that are in financial control, why not save 20% on your purchase? I think the problem gets into when do it at every department store. Then it gets a little crazy.

      I’ve often wondered for those that do open the card to save on their purchase, what percentage of those end up losing money because they made minimum payments on the card and lost out because of interest. Or even worse, because of all the cards they have, they ruin their credit score which affects them in other areas of their financial life.

      • says

        Eric – I agree, it’s all about how responsible a person is. I have found that people “in the moment” are very responsible, but when the bill comes in, they “forgot about it.” Then the interest start accruing… and you know where it goes from there.

        Thanks for the feedback.

  2. says

    You know Jeff, I keep hearing about how it doesn’t pay to keep money in the bank because the interest rates are so low, and I always have 2 responses:

    1. ANY interest is better than none, and
    2. The difference between what you pay in interest and make in interest will be in the 20% range

    So, rather than spending that money, why not just keep it in your pocket and look at it as “paying yourself”, very simple.

  3. says

    I read in the Wall Street Journal a number of years back that Sears’ credit card division made more money for the company than all other business units combined. This single piece of information was enough to understand that retailers offer credit cards to enhance profits – often by substantial sums.

    As for the interest rate arbitrage that Eric alluded to in his comment, with interest rates in safe vehicles being so low, the opportunity is less enticing at the moment. For larger purchases (particularly at places that compensate salespeople through commissions), it’s a better idea to negotiate a cash price to save more on the front end and not worry about being pillaged on the back end with interest and fees.

    The last stat that I read about the percentage of folks that pay the balance in full by the end of the same-as-cash period was a paltry 22%. That means 78% of folks wind up paying the piper in the end. I’d love to see a fresh look at what the numbers are today. [If you find some recent data, reply to this comment]

      • says

        Michael, I also think that the Sears figures may be skewed a little bit because they were the original owners of Discover.

        As for the low interest rates being less enticing, I would agree, but I’d also say that anyone with sound financial knowledge would know that although the rates are fairly paltry, it is still a better option for them. I really don’t know of many stores, at least large national chains, that will give any kind of discount for using cash but if you know of any, I’d love to know which ones do.

        • says

          I haven’t been to a jewelry store yet that didn’t prefer cash. Nor have I seen a furniture store (not named IKEA) that didn’t like Benjamin Franklin. Any business that operates on high margins or with commissioned salespeople will have cash discounts available. H.H. Gregg provided a better price for our last television, Circuit City before that, and Sears before that. We received a better price at Furniture Fair for our bedroom outfit and kitchen table. Prior to that, we found better pricing at Value City Furniture – all with cash.

          Moving outside of retailers, you’ll find cash commands far better pricing for big purchases – housing, automobiles, maintenance/repairs (plumbers, electricians, mechanics, roofers, etc.). We use CarX and always wind up with a better price (it helps that we give them a pretty good bit of business on a regular basis).

          There are plenty of opportunities to get the cash discount:)

Leave a Reply

Your email address will not be published. Required fields are marked *