When the words “retail store branded credit card” (or some variation of the phrase) are uttered, your response should be to turn and run. Store cards are notorious for being “bad” financial products for a variety of reasons.
The incentive that’s meant to rope you in – like 10% of your purchase – is temporary; the interest rates on the cards are upwards of 20%; the minimum payments are incredibly low, which encourage people to maintain high balances that rack up that nasty amount of interest; and many come with hidden fees (or just high fees) that can cost you even more money.
But there’s one store card that might offer a slight exception to the rule that says avoid store credit cards at all costs: the Target REDcard™ Credit Card. Let’s take a look at this card to see if it can benefit frequent shoppers – or if it’s just another credit trap waiting for uneducated consumers.
How the REDcard Works
The Target REDcard™ Credit Card offers shoppers 5% off in the form of an instant discount on every purchase made in stores or online (some restrictions apply). It’s a store branded card that does not have an annual fee – or a complicated rewards program, as again, the reward is given immediately upon purchase. The card can only be used at Target stores and Target.com.
Target REDcard vs. Target Prepaid REDcard
The Target REDcard™ Credit Card is a regular credit card, not to be confused with Target's prepaid REDcard product.
A prepaid card is loaded with funds each month by the user who can then use those funds as they wish, like a regular debit card. Most people use prepaid cards as a budgeting tool or as an alternative to a checking account. Prepaid cards do not factor into your credit report and, as a result, have no impact on your credit score.
With a credit card, you are borrowing funds from a bank and must pay them back each month or face penalties, fees, and a likely hit to your credit score.
What Do You Get with a REDcard?
The best thing about a Target REDcard™ Credit Card is that you get your 5% at Target & Target.com discount at every checkout, no gimmicks or strings attached. It applies to everything you can buy in the store, including items already marked down or on sale, and you can use it while applying other coupons to your purchase.
The exception is that you will not receive 5% off the following purchases:
- Prescriptions, over-the-counter items located behind the pharmacy counter and clinic services at Target
- Target Optical™ eye exams
- Target gift cards and prepaid cards, and Stockpile and Gift of College gift cards
- Certain restaurant merchants in Target stores, such as D’Amico & Sons Italian Kitchen and Pret A Manger
- Gift wrap and shipping and handling charges on Target.com purchases
- Wireless protection program purchases and deposits required by a mobile carrier
In addition to the 5% discount, you’ll receive free shipping on any purchase online, an added benefit if you’re an online shopper.
There are no points to earn and redeem, no statement credits to request, no hoops to jump through. Just straight-up 5% off on your purchase – and free shipping if you’re shopping Target.com.
The Pitfalls of Target’s REDcard You Must Avoid
Of course, the benefits quickly evaporate should you make one tiny mistake with your Target REDcard™ Credit Card. The variable interest rate – at 25.15% Variable APR – is high, and makes the 5% savings completely inconsequential if you’re only paying the minimum.
Ultimately, despite the better-than-average perks, the Target REDcard™ Credit Card is a store branded credit card and comes with the typical pitfalls: high interest rate, high fees, low minimum payment requirement designed to encourage people to revolve balances.
Not to mention, most REDcards come with low limits since you can only use them at Target stores. This could hurt your credit utilization ratio – and therefore, your credit score as a whole – if you don’t have many other credit cards. Remember, credit utilization is based on your total credit limit, not per card.
If you’re just starting to build your credit, the REDcard’s 5% may not be worth the downsides of holding the card.
To sum up, here’s what you need to know before considering this credit card:
- The REDcard grants you a 5% discount on nearly every purchase at Target and Target.com. This discount is immediate upon checkout, so it’s more like a guaranteed discount on your Target purchase than other forms of money back.
- You’ll receive free shipping online at Target.com when you use your Target credit card.
- The APR can be as high as 25.15% Variable.
- Minimum payments are low, which encourages consumers to make small payments on balances over long periods of time – costing an incredible amount in interest fees.
- Late payment fees run up to $38. Returned payment fees run up to $27.
If you miss a payment, are late on a payment, or only pay the minimum balance, your 5% savings will be automatically negated.
Only use the Target REDcard™ Credit Card if you have established a history of paying your balances in full and on time – and can manage your money so you only purchase what you budgeted for and truly need.
There’s also one more issue that consumers should be aware of, although whether it’s “good” or “bad” is probably a matter of personal preference. In the interest of full disclosure, however, we believe in making note of the fact that Target does use its branded store cards to collect data and information about you and what you buy.
Target’s REDcard is a great financial product for people who frequently shop at the store for everyday purchases on necessary items like toiletries, household goods, school supplies, and clothing. There’s no annual fee and the automatic 5% discount is an excellent way to save even more money when you do your regular shopping.
However, there are big consequences for missing payments or getting trapped into revolving your balances month to month. The late payment and missed payment fees are high, and the variable interest rate is alarming at 24.15%.
You may want to avoid picking up this card if you’re not a normal Target shopper – and the promise of a “reward” will encourage you to spend money that you would not otherwise. And most certainly avoid this store card like you would any other if you struggle to manage your money and your credit.
Otherwise – if you’re experienced in managing your purchases and your credit, and already have good credit – the REDcard is a great option if you’re looking to save even more on necessary purchases and spending you already do.
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