Just as you can count on Christmas arriving on Dec. 25 every year, you can be sure that stores will ask you to sign up for a store credit card over the holidays. In a rush to pay for your purchases, you may not be paying much attention to the details of these offers. But you should: Applying for store credit card is an important financial decision, just like applying for any credit card. So how can you size up these cards and apply for the best one?
Here are six questions to ask when evaluating a store credit card.
1. What’s the initial offer?
Part of the success of store credit cards is due to the initial sign-up bonuses offered to new applicants, which is typically a discount on same-day purchases. You should evaluate the size of the discount relative to the purchases it will apply to. Then compare the money you'd save to the sign-up bonuses typically offered by other credit cards. For example, a 10 percent discount on a $100 purchase would only amount to $10, which is far less than competing cards' offers. Yet if you were able to receive a 20 percent discount on a $1,000 purchase, it would be worth $200, which is a competitive bonus compared to other cash-back rewards cards.
2. What are the rewards for future purchases?
In addition to a generous sign-up bonus, the best store credit cards offer valuable rewards that can be put toward future purchases. Furthermore, the rewards offered should be in excess of what you could otherwise receive from a credit card with a bank rewards program. The best store credit cards will offer rewards for in-store purchases that are worth 3 percent to 5 percent of the amount spent. This is better than the 2 percent cash back offered by some of the best cash-back credit cards.
3. What benefits are being offered?
Although some store credit cards can compete with other cards' reward programs, many fall short. But where store credit cards really shine is when it comes to benefits. The best store cards shower customers with exclusives such as coupons, access to special events and savings on shipping. For example, the Target RedCard offers free shipping on online purchases and an extra 30 days for returns. The L.L. Bean credit card offers free returns on online orders and free monograms on L.L. Bean products.
4. What’s the standard interest rate?
About half of all Americans will incur interest charges at some point in the year if they carry a balance on their credit cards. For these cardholders, it's vital to examine the standard interest rate of a card. Unfortunately, store credit cards may have higher interest rates than similar cards that are not co-branded with a retailer.
5. How often will you shop at that store?
If you'll be shopping at the retailer often, it can make sense to have its store credit card for any rewards and benefits offered. But if you aren't a frequent customer, you should probably pass on the card. One of the reasons retailers love to offer these cards is because they serve as an advertisement for the store that customers carry around in their wallet. If you can buy comparable merchandise for less elsewhere, don't waste your money at the store that offered a credit card just so you can earn a small reward.
6. Is my credit good enough to get approved?
Before you apply for any credit card, it's important to know where your credit stands to make sure you don't apply for cards you're unlikely to be approved for. Unnecessary inquiries on your credit report can make it that much harder to get another credit product once you've been denied. You can check your credit scores for free on Credit.com to see where you stand.