The Difference Between a Bank Credit Card and a Store Credit Card

Many people use credit cards issued by their banks to improve their FICO scores. Others make use of advantages such as airline reward miles and cash back, but our clients often tell us that they’re confused by store credit cards. They ask, “What are they good for?” or “Why do I need one?”

Savvy shoppers are typically wary of potentially unethical up-selling strategies. To many people, store credit cards seem too good to be true. When a smiling cashier suggests you can save 30% on your purchases if you sign up for a store credit card at your favorite boutique, it can be tempting to take advantage of what seems to be a great deal. Unfortunately, this can be the first step down the slippery slope to a mountain of debt.

We have assisted customers who got deeply into debt due to credit card overuse. People are often taken in by the advantages that credit cards appear to offer, and spend more freely than if they were paying with cash. Store credit cards, which offer benefits and rewards like loyalty discounts, can be a fun and effective way to save money while you shop—as long as you wield them responsibly.

The History of Store Credit Cards

You might be surprised to learn that the very concept of a credit card originated in retail stores, not in the big banks lining Wall Street. Retailers began offering store credit cards to customers that had built positive, long-term relationships with their businesses. Customers who were trustworthy, and paid off their debts to the retailer in a reasonable amount of time. Store owners saw the benefit of rewarding favorite customers, and began offering credit to give customers an incentive. These incentives were designed to get the customer to return and continue spending money in the store.

Over time, the idea caught on. Today, many people opt for bank credit cards for convenience. Many bank or store credit cards can be used virtually anywhere. The main advantage with bank cards is that you’re not limited to purchasing items sold at one particular retail store, and the perks are equally flexible for purchases made anywhere.

Why the Idea of a Store Credit Card May be Appealing

At first glance, a store credit card seems like a dream come true. After all, you get to take advantage of all your favorite retailer’s special deals and promotions without any fear that you won’t be able to pay off your purchases. However, you must remember that using a credit card—even one affiliated with a specific brand—is not free money or an excuse to overspend. Store cards are just as risky, if not riskier, as bank credit cards, so use them wisely. If you have trouble sticking to a budget or feel like you can’t control yourself when it comes to shopping, then it could be better for you to stick with a traditional bank credit card.

In addition, if you plan on making big purchases in one go (like furniture), then keep in mind that some store cards require you to spend more than $500 at once before they will waive their interest rates for six months. This means if your purchase is less than $500, then it will still cost interest during those six months unless you pay off your balance in full each month. If there is no minimum spending requirement and no interest charges after six months (or ever), then it could make sense for you to apply for such a card instead of going through traditional channels.

The Surprising Differences with Store Credit Cards vs. Bank Cards

There are a number of subtle differences between store credit cards and bank credit cards that many people overlook. Since store credit cards are often upsold when you’re already cashing out, the idea of saving money or collecting reward points can be very appealing. You might not take the time to read the fine print before signing up for a store credit card, and you may be more likely to make impulse purchases from the retailer simply because it’s easy and feels rewarding.

As a rule, bank credit cards tend to offer far more advantages for consumers when compared to store credit cards. Store cards are sometimes offered only to “members”—in other words, frequent customers willing to pay a monthly or yearly membership fee to accumulate points which can be redeemed for rewards. Airlines commonly use this tactic to ensure that frequent fliers remain loyal to their company. Additionally, store cards rarely offer cash back while is a standard reward with bank cards.

Credit Limits with Store Credit Cards

In most cases, bank credit cards come with higher credit limits. Where a store-branded credit card may have a $1,000 limit, an equivalent bank card may come with up to $5,000 in available credit. Of course, you can get approved for more or less than that based on your personal history. So, it’s not just about what’s available out of the gate—it’s also about how much your bank will let you borrow in total over time. In addition to those high initial limits, banks tend to offer lower interest rates than stores do on their cards. That makes them ideal for people who want to carry a balance from month to month (or who don’t plan on paying off their purchases in full each month).

But if you pay off your balance every month, then it may not make much of a difference in which type of card you choose. You’ll be charged no interest either way. And if you’re planning on carrying a balance but want to avoid paying as much interest as possible, there are other factors besides APR that might be important to consider—such as whether there are any introductory offers available (like 0% APR) or whether rewards programs could help offset some of those costs. Bottom line: If you want convenience and flexibility, stick with a store-branded card.

Consider the APR Differences

Another important thing to keep in mind is the difference in annual percentage rate (APR) between a store credit card and a bank card. Credit cards offered by major banks typically offer much lower APRs on purchases. Contrast this with the majority of store credit cards, which rack up APR rates to the highest rate possible. You could be paying up to 29% APR—the highest general use rate—when using a store card, even if you have not occurred any late payment penalties.

Many responsible credit card owners are disturbed to learn that they could easily be forced into paying sky-high APR rates on a store card, even though they’ve never missed a payment in their life. If you’re already struggling with debt, it may be wise to consider whether your store credit cards are really a necessary part of your financial plan.

Do Store Cards Help Credit?

Everyone’s situation is unique, and you may decide that the advantages to owning a store card for your favorite clothing store or airline might outweigh the disadvantages. On the other hand, many people don’t feel that store cards are worth the hassle or the risk of sky-high interest charges. The key is to figure out whether it’s hurting or helping you reach financial stability.

Do Store Credit Cards Carry an Annual Fee?

Like any type of credit card, there’s an annual fee for store credit cards. However, some have no annual fee whatsoever. Usually, these are issued by third-party lenders like banks or credit unions that compete with department stores in terms of interest rates and other perks. Some department stores might waive their annual fees if you’re a loyal customer or spend enough money on your card during the year. Most store credit cards charge around $30 to $100 per year but again, some offer no-annual-fee cards at all! For example, JCPenney usually offers three different store credit cards with 0% APR for 18 months on balance transfers and cash advances. There is no annual fee for any of them.

On top of that, they don’t require a security deposit either. Also, it’s worth noting that store credit cards often come with more generous return policies than bank credit cards do. If you’re someone who buys things online frequently and returns items often, then having a store credit card can be very beneficial to you. Many allow you to return items without a receipt or even up to several years after purchase—as long as they’re in good condition—and even offer free shipping back to the retailer (which can save you tons). On top of that, many also give special discounts on certain products (like 10% off specific brands) when using your store credit card at checkout—which can add up over time!

Can Balances Be Transferred from a Bank Card to a Store Credit Card?

If you can transfer a balance from your bank credit card to your store credit card, you could save yourself some money on interest. However, you may end up paying hefty annual fees, which might negate any savings. Before transferring any balance, make sure to find out what kind of interest rate you’ll get and whether there are annual fees that may eat into your savings. Additionally, know when it makes sense to actually transfer a balance. For example, some store credit cards offer zero percent introductory APRs but then hit consumers with super high rates after that period expires. If you have time before interest kicks in (or if there isn’t any), it might make sense to just keep paying down debt at your bank—or else put it on another credit card or loan with better terms. It all depends on how much cash you’re carrying around.

However, if you have an unsecured bank card, you might be able to get a zero percent introductory APR on purchases (like with store cards) by transferring your balance. It’s rare, but it’s one way you can save money on interest—as long as you remember to pay off your balance before any annual fees kick in. Keep in mind that some stores may try to lure you into spending more just so they can hit you with higher interest rates after that introductory period ends. If your bank offers a rewards program (or matches your store credit card rewards), it might make sense to stick with one card for certain purchases instead of switching back and forth.