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When To Open a Store Credit Card — and When Not To

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

You’ve likely been offered the chance to apply for a store credit card while having your items rung up at a retailer’s counter, or while shopping online. Often, these offers come with the benefit of getting a good chunk — say, 10% or more — off your initial purchase.

So is it a no-brainer to take the discount and sign up?

Not necessarily. There are certainly advantages to getting a store credit card, including that initial promotional discount, ongoing rewards and the ability to use your new card as a credit-building tool. However, the downsides include low credit limits, high interest rates and deferred interest.

Here’s some info to help you decide whether getting a store credit card is the right choice for you.

What are store credit cards?

A store credit card allows consumers to receive benefits and rewards for shopping at a specific retailer.

For example, if you get a credit card from your favorite clothing store, you may get 10% or 20% off your first purchase, then continue to receive perks as a cardholder, including continuous discounts when you shop there or at related retailers, access to special promotions and events, and even birthday gifts.

There are two main types of store credit cards — those that can be used at a specific store (also known as closed-loop cards), and those that can be used at any number of retailers (open-loop cards). Open-loop cards are typically co-branded with major card networks, like Visa or Mastercard.

Gap, for one, offers a GapCard that can be used only at Gap and Gap Factory stores, while a Gap Visa card that allows you to earn rewards at any store that accepts Visa, which will ultimately can be redeemed for a Gap purchase.

Reasons to open a store card

  • Lower barrier to entry: If your credit score isn’t stellar, It can be easier to be approved for store cards than for other cards. “Retailers want to sign up as many people as possible for their credit cards, because they know if someone signs up for their card, they’re much more likely to shop regularly at that store,” said Matt Schulz, a credit card industry analyst for CompareCards, which along with MagnifyMoney, is owned by LendingTree. However, you may need a higher credit score to qualify for a co-branded card. “Often, if you apply for a co-branded store card and get denied, the store will automatically consider you for the store card, too,” Schulz said.
  • Good for credit-building: Obtaining a store card can be one way for people with low credit scores, or no credit at all, to improve or start building their credit. Once you’ve been approved for the card, using it responsibly can help you boost or build your credit, as your purchase and payoff activity will be reported to the credit bureaus.
  • Rewards: As previously noted, you can be rewarded for your use of store credit cards, getting perks that may go beyond the initial discount. If you shop a lot at a particular store, you may benefit from their card.

Reasons a store card can be risky

  • High interest: According to CompareCards, the average rate on new credit card offers is approximately 17%; however, CompareCards also noted that the average rate offered for new store card offers, in particular, is much higher — nearly 25%. If you don’t pay off every purchase when your bill is due, you can really rack up the interest-related debt. “Store card APRs are very high because issuers know that making the card available to folks with crummy or thin credit means greater risk for them,” noted Schulz. “Higher APRs are a way for the banks to protect themselves against that risk.”
  • Deferred interest: You may be familiar with the 0% promotional periods offered by traditional credit cards — that is, a time during which you can carry a balance without paying interest. Deferred interest offered by a retailer might seem like the same thing, but it’s not. Deferred interest periods do indeed allow you to carry a balance without paying interest, for a time. However, when that period ends, if you haven’t paid off the card in full, you’ll be on the hook for paying interest not only for the balance that remains, but for the entire original purchase.
  • Low credit limits: While store cards can help you build your credit, their often-low credit limits may be a negative for your utilization ratio if you do not have many — or any — other cards. Your utilization ratio is the amount you owe on your cards compared to your total credit limit, and is an important part of your credit score. It’s generally recommended that you keep a utilization ratio below 30%. — for example, if you have a store credit card with a $500 limit, and you charge $250. If the store card is your only card, this relatively small purchase will put your utilization ratio at a hefty 50%, which could ding your credit score. (If you do have other cards, however, getting more credit can be good for your utilization ratio, as your credit score considers individual card utilization as well as the utilization used across all your cards).
  • Limited use: If you get a closed-loop card, you are limited in the purchases you can make with it.
  • Could trigger your shopaholic tendencies: If you’re prone to making frivolous purchases, getting a store card may prompt you to spend more to try to get the rewards offered. It’s never a good idea to buy items you don’t really need simply to get rewards, as you’re still spending money you didn’t have to in the first place.

How to tell if the discount is worth it

Some people might sign up for a store card just to get that promotional discount, with no plan to use the card again after their initial purchase. This may be a good move — if you pay that card off right away. However, if you carry a balance, any discount you receive will be negated by interest charges you’ll incur.

“The APRs are just so high that the math can work against you in a big hurry, even if you get a good discount initially,” Schulz said. “It doesn’t take an accountant to understand that paying 25% to save 15% isn’t a good deal.”

Let’s look at an example. Say you make a $300 purchase and get 15% off. That’s $45 off, bringing your bill down to $255. Sounds good, right?

Now let’s say the APR on the card is 25%, and, instead of paying off that balance right away, you make monthly payments of $15. Over the time it will cost you to pay off your card (22 months), you’ll pay $63.09 in interest, wiping out your initial discount.

Bottom line: It’s best to pay your card off right away, or at least make larger monthly payments, to reap the benefits from that promotional discount.

What’s the best store credit card to get?

If you’re considering a store card, look for those with no annual fee, as low an APR as possible and good perks. If you can qualify for a co-branded card, their flexibility can often help you rack up rewards faster. Overall, more general rewards cards may be a better bet than individual store cards, if you can qualify.

Schulz recommends you don’t jump into applying, or feel pressured by a store employee to get a card.

“Take a flier, read about the card at home and then, if the card still sounds good to you, apply the next time you go to the store,” he said. “Chances are all the same perks will still be in effect and you’ll be making a much more informed, less pressure-filled choice.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Stropoli
Rebecca Stropoli |

Rebecca Stropoli is a writer at MagnifyMoney. You can email Rebecca here

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Build Your Credit Score: 6 Secured Cards With No Annual Fees – January 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any credit card issuer. This site may be compensated through a credit card issuer partnership.

Secured cards are a great way to build or improve credit. When you open a secured card, you submit a security deposit that typically becomes your credit limit. This deposit acts as collateral if you default on your account, but you can get it back if you close your account after paying off your balance. As long as you use a secured card responsibly — for example, make on-time payments and use little of your available credit — you may see improvements in your credit score. Unfortunately, in addition to the upfront deposit, this credit-building tool can have extra costs, like an annual fee.

You can avoid that expense with one of these six no annual fee secured cards, which have a variety of uses:

Cards to consider

Rewards

Discover it® Secured

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on Discover Bank’s secure website

Rates & Fees

Discover it® Secured

Annual fee
$0
Minimum Deposit
$200
Regular APR
24.49% Variable

The Discover it® Secured is a standout secured card that provides cardholders the opportunity to earn cash back while building credit. A cashback program is hard to find with secured cards, and the Discover it® Secured offers 2% cash back at restaurants & gas stations on up to $1,000 in combined purchases each quarter. Plus, 1% cash back on all your other purchases. In addition, there is a new cardmember offer where Discover will match ALL the cash back earned at the end of your first year, automatically. This is a great way to get a lot of rewards without needing to do any extra work. In addition to a cashback program, this card provides valuable credit resources such as free access to your FICO® Score and a Credit Resource Center — just note these services are available whether you’re a cardholder or not. Discover also takes the guesswork out of wondering when you’re ready for an unsecured card (aka a regular credit card) by performing automatic monthly account reviews, starting at eight months of card membership.

What to look out for: There is a high 24.49% Variable APR for this card, so you could end up paying a lot more than purchase prices if you carry a balance. Try not to overspend and make it a goal to pay each statement in full so you avoid interest charges.

Low deposit

Capital One® Secured Mastercard®

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on Capital One's website

Capital One® Secured Mastercard®

Annual fee
$0
Minimum Deposit
$49, $99, or $200
Regular Purchase APR
26.74% (Variable)

The Capital One® Secured Mastercard® offers qualifying cardholders a lower security deposit compared to other secured cards. You will get an initial $200 credit line after making a security deposit of $49, $99, or $200, determined based on your creditworthiness. Typical secured cards require you to deposit an amount equal to your credit limit, so this card has added perks for people who qualify for the lower deposits. You can also receive a credit limit increase without making an additional deposit after making your first five monthly payments on time. This is beneficial for people who need a higher credit limit and don’t want to (or can’t) tie up their money in a deposit. Also, you’ll have access to CreditWise® from Capital One® and Platinum Mastercard® benefits that include travel accident insurance and price protection.

What to look out for: The $49 and $99 security deposits are not guaranteed and depend on your creditworthiness — that means you may still have to deposit $200. Also, it’s not a good idea to carry a balance on this card because it has one of the highest APRs at 26.74% (variable).

Average deposit

Citi® Secured MasterCard®

The information related to Citi® Secured MasterCard® has been independently collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Citi® Secured MasterCard®

Annual fee
$0
Minimum Deposit
$200
Regular Purchase APR
23.99% (Variable)

The Citi® Secured Mastercard® requires a $200 security deposit, which is typical of secured cards and a good amount to establish your credit line. You can deposit more money if you want to receive a higher credit line, but if you don’t have a lot of money available to deposit, coming up with $200 is manageable. This card doesn’t have any additional card benefits like rewards or insurances, but you can access Citi’s Credit Knowledge Center for financial management tips.

Low APR

Visa® Secured Card from MidSouth Community FCU

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on MidSouth Community FCU’s secure website

Visa® Secured Card from MidSouth Community FCU

Annual fee
$0
Minimum Deposit
$200
Regular Purchase APR
11.15% Variable

Because MidSouth Community is a federal credit union, you need to be a member to qualify for this card. Membership is limited to people who work, live, worship, or attend school in the following Middle Georgia counties: Bibb, Baldwin, Crawford, Hancock, Houston, Jones, Monroe, Peach, Pulaski, Putnam, Twiggs, Washington, and Wilkinson. If you qualify, you may be able to get a secured card with an APR as low as 11.15% variable.

What to look out for: This card is very restricted, therefore few people will be able to qualify for this low APR secured card.

Unrestricted low APR

Affinity Secured Visa® Credit Card

APPLY NOW Secured

on Affinity Federal Credit Union’s secure website

Affinity Secured Visa® Credit Card

Annual fee
$0
Minimum Deposit
$250
Regular Purchase APR
12.85% Variable

The Affinity Secured Visa® Credit Card requires cardholders to join the Affinity FCU. You may qualify through participating organizations, but if you don’t, anyone can join the New Jersey Coalition for Financial Education by making a $5 donation when you fill out your online application. This card has a 12.85% variable APR, which is one of the lowest rates available for a no annual fee secured card and is nearly half the amount major issuers charge. This is a good rate if you may carry a balance — but try to pay each statement in full.

What to look out for: There may be a membership fee associated with this card if you don’t qualify through participating organizations. The fee you may have to pay is low at $5, but it may be an issue for people who don’t want to pay anything to open a secured card.

Unrestricted federal credit union

Savings Secured Visa Platinum Card from State Department Federal

Savings Secured Visa Platinum Card from State Department Federal

Annual fee
$0
Minimum Deposit
$250
Regular Purchase APR
14.24% Variable

The Savings Secured Visa Platinum Card from State Department Federal is open to anyone, regardless of residence. If you aren’t eligible through select methods including employees of the U.S. Department of State or members of select organizations, you can join the American Consumer Council during the application process. There is no fee associated with joining since State Department FCU pays the $8 on your behalf. There is a rewards program with this card where you earn Flexpoints, which can be redeemed for a variety of options like gift cards and travel. The APR can be as low as 14.24% variable, which is reasonable considering many secured cards from major issuers are above 23%.

What to look out for: If you decide to take out this card and become a member of the SDFCU by joining the American Consumer Council, make sure you do not go to the ACC’s website and submit a donation. That fee is waived by the SDFCU when you fill out your credit application. Simply select “I do not qualify to join through any of these other methods” and select the ACC from the menu to avoid the fee.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Alexandria White
Alexandria White |

Alexandria White is a writer at MagnifyMoney. You can email Alexandria at [email protected]

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View Your Free FICO Score for all 3 Credit Bureaus

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View Your Free FICO Score for all 3 Credit Bureaus

There are lots of free credit scores floating around, but most of them are not the true FICO® score that lenders subscribe to and use as part of their decision.

However FICO® is working to change that by allowing banks and credit unions to give you free ongoing access to the real score they use to make lending decisions as long as you are an account holder.

The easiest place for anyone to get their free FICO® score is via the Discover Credit Scorecard. You do not need to be a customer of Discover – anyone can register and get their official FICO® score for free. The data is from the Experian credit bureau.

You can also get a free Experian FICO® 8 score at freecreditscore.com. While that site used to require you to enter your credit card to get information, your FICO® score and Experian report are completely free with no credit card information needed.

To find out where to get your FICO® score from the other credit bureaus, read on.


Every bank chooses at least one of three credit bureaus to calculate a FICO® score: Equifax, Experian, and TransUnion. The FICO® score one bank uses can be different than another depending on which credit bureau they pulled a report from.

The good news is, you can now see your real, free FICO® score from all three credit bureaus depending on which banks hold your accounts. FICO® itself charges $19.95 a month for you to see those scores, though they also throw in full copies of your credit reports, which the free bank scores do not.

Here’s where to find your real, free FICO® scores from banks or credit unions anyone can join:

Equifax Scores

Citibank

  • Available with: Any Citibank branded credit card. This does not include Citibank cards with other brands like the American AAdvantage or Hilton HHonors cards.
  • Score updated: Monthly
  • Where to find it: On your online account or the Citi app
  • Learn more

DCU Credit Union

  • Available with: Any credit card, or a checking account with direct deposit
  • Score updated: Monthly
  • Where to find it: Look for an invitation in your online account
  • Learn more

Huntington Bank

  • Available with: The Huntington Voice credit card – you will get a FICO® Bankcard Score 2 from Equifax
  • Where to find it: Log into your account and you’ll see a link

PenFed

  • Available with: PenFed members with active checking accounts, installment loans, and revolving lines of credit
  • Score updated: When PenFed refreshes – no set schedule
  • Where to find it: Login to your account and click ‘Your FICO® Score is Ready’
  • Notes: PenFed uses a more advanced ‘Next Gen’ FICO® score that has a different scale than traditional FICO® scores, with 150 as the lowest score and 950 as the highest score. Most banks use a score with a scale of 300 to 850. Because of this the score you see on PenFed’s site may be higher or lower than what you see from others.
  • Learn more

State Employees Credit Union of North Carolina

  • Available to all credit card holders

Experian Scores

Capital One and American Express regularly use Experian’s FICO® among others for credit decisions.

American Express

  • Available with: Any American Express credit card
  • Score updated: Monthly
  • Where to find it: On your online account

Discover

  • Available with: All Discover cards and if you are not a Discover cardholder, you can sign up to get your FICO® score for free by visiting creditscorecard.com.
  • Score updated: Monthly
  • Where to find it: On your statement and online

First National Bank of Omaha

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

Wells Fargo

  • Available with: Any Wells Fargo credit card
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

Please note: a previous version of this blog post noted that USAA provides a free FICO® credit score. USAA actually provides a free VantageScore.

TransUnion Scores

Bank of America

  • Available with: Select credit card accounts
  • Score updated: Monthly, with history
  • Where to find it: Link available on your account summary page under the ‘Tools and Investing’ section

Barclays

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: Link available on your account summary page

Unknown Bureau

Other, less open to the public free FICO® providers include:

  • Ally, for auto loan holders.
  • Hyundai and Kia Motor Finance allow customers to view their FICO scores through their online accounts.
  • Sallie Mae offers a free, quarterly TransUnion score if you receive a new Smart Option Student Loan.
  • Merrick Bank doesn’t have open applications for its Platinum Visa, but does offer free scores to its cardholders.
  • Some credit unions with limited membership also offer scores, so check yours to see if it provides them.

Find the Best Credit Score for Your Needs:

The credit score that you are looking for varies, depending on what type of credit you are looking to apply for. Each credit score version has different benefits, and lenders pull certain scores in accordance with your application.

Credit Score Monitoring

The best options: All VantageScores and FICO® scores

If you’re simply looking to monitor your credit score and stay on top of your credit, either VantageScore or FICO® score will suffice.

New Credit Card

The best options: FICO® Bankcard Scores or FICO® Score 8 primarily; FICO® Score 3

Where to get them: Get your FICO® Score 8 from Credit Scorecard by Discover or freecreditscore.com

When applying for a new credit card, these scores are most likely to be pulled by credit card issuers. Lenders may pull your score from one or all three bureaus.

Mortgage Loans and Mortgage ReFis

The best options: FICO® Scores 2, 4, 5

Where to get them: Myfico.com for $19.95 a month

These scores are used in the majority of mortgage-related credit evaluations, with lenders pulling your score from all three bureaus. However, these scores are not free and can only be purchased at myfico.com.

Auto Loans

The best options: FICO® Auto Scores 2, 4, 5, 8, 9

Where to get them: Myfico.com for $19.95 a month

Auto scores are industry-specific and used in the majority of auto-financing credit evaluations. Lenders may pull your score from one or all three bureaus. Unfortunately, these scores are not free and need to be purchased at Myfico.com.

Personal Loans, Student Loans, and Retail Credit

The best option: FICO® Score 8

Where to get it: Credit Scorecard by Discover or freecreditscore.com.

For other financial products such as personal loans, student loans, and retail credit, FICO® Score 8 is best. This is the credit score most widely used by lenders, and they may pull your score from one or all three bureaus when making a decision.

LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO®

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

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LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

Other Scores and Their Value

FICO® Score 9 is the newest model and not widely used yet. It is also not available for free at this time. The benefits of this score are that it doesn’t penalize you for paid collections and reduces the ding you get from unpaid medical collections. See our review for more information.

The FICO® NextGen score is used to assess credit risk, but only a small number of lenders use it due to its 150-950 scoring range and older model.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at [email protected]

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