Advantages: Offer discounts, Help you build the credit, Good for a large purchase, Disadvantages: Low credit limits, Limited use to specific mediums, The trap of paying the minimum payment, Overspend to earn rewards
Remember being standing in a lane of a mall waiting for your turn and when finally you depart to checkout, the storekeeper asks you to buy a card which can give you irresistible benefits such as golden discounts, sign up and get a huge discount on your purchase, loyalty rewards and premium discounts in sales, etc., which can save the hefty amount of money in shopping! How Cool! But is this real or phony strategy is there to fool people?
But what is this card? And is this seriously benefit you for real?
If you are a regular customer at the mall and purchasing frequently, buying a card is a wise choice to get the benefits offered by store cards.
Many megastore retailers such as Target, Amazon, and Walmart offer store cards that can provide advantages to regular customers. so let’s discuss some perks of the store credit card,
Advantages of Store Credit Card:
The first thing you receive after the signup of the card is the discount of the initial purchase on the day you purchase the store credit card.
They can also receive coupons which can be used elsewhere in other integrated stores to get a special discount.
Some store cards can also provide you a liability to let you return or exchange items without a receipt, or offer cashback or rewards points.
Help you build the credit:
Retail credit cards usually report the credit payment history to major credit bureaus just like regular credit cards. If you making your payment on time, you a use a store card to rebuild the credit.
Good for a large purchase:
Customers who have a long list of buying large appliances can benefit from the store credit card, retailers offer special financing options to sell the electronics. Customers in some cases have the incentive to pay off their balance interest-free during the special promotional period, usually anywhere between six to 24 months.
But talking about the downsides of Store credit cards are crucial before purchasing:
Store cards are scandalous for providing the total benefits to customers only. Low credit limits, high-interest rates, and limited usability are the biggest downsides
Disadvantages of Store Credit Card:
Low credit limits:
A store card that comes with a tagline of "Low Credit Limits" is a red flag because it doesn’t help you build the credit score. An important factor in your credit score is your credit utilization rate (CUR). This is the total amount of credit you’re using ( your balance) compared to your total credit limit. For example, if a store card gives you a $300 credit limit and you have a $270 balance, you’ll have a 90% CUR — which is very high. Financial experts generally recommend having a CUR below 30%.
Limited use to specific mediums:
The store credit card has the limitations to use only in specific channels which can create a problem of multiple cards for different purchases which can be a hassle for customers to pay a toll of balance at the end of the month.
However, some stores provide the options to apply for different payment channels such as Visa, Mastercard, or American Express backed card, which you can use anywhere.
The trap of paying the minimum payment:
A common trap many cardholders do is to minimum amount using their store credit cards. Store cards have one of the highest interest rates compared to any credit card, therefore when you only transact minimum payments, you can quickly rack up interest charges and debt.
For instance, Walmart Rewards Card has a high 26.99% variable APR which can result in hefty interest charges if you carry a balance. If you have a $500 balance on the Walmart reward card and only pay $35 each month, it will take you roughly 18 months to pay off your balance and during that time, you’ll wind up paying about $109 in interest.
Overspend to earn rewards:
Store cards provide tempting discounts and exclusive cardholder perks that seemingly encourage you to spend at the store. However, you can dig yourself into issues if you find yourself charging more than you can afford just to meet minimum spending requirements for various promotions.
Like any financial product, has both pros and cons. A store credit card can build or pitfall the credit usage. By spending wisely, paying off your balance on time, and limiting the number of credit cards you apply for, using a store credit card at your regular store is one of the best ways to maintain a revolving line of credit and keep your credit score climbing