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

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Many people use credit cards issued by their banks to improve their FICO scores, and others make use of advantages such as airline reward miles and cash back, but our customers 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 upselling 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 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 to customers that had built positive, long-term relationships with their businesses – customers who were trustworthy, and paid who 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 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. Bank credit cards can be used virtually anywhere. You’re not limited to purchasing items sold at one particular retail store, and the perks are equally flexible.

The Surprising Differences

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, and you may be more likely to make impulse purchases from the retailer simply because it’s easy.

As a rule, credit cards offer far more advantages than store 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.

Consider the APR Differences

Another important thing to keep in mind is the difference in annual percentage rate (APR) between a store 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 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 accumulated no 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 cards are really a necessary part of your financial plan.

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.

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