Store credit cards: What they are and how they work

You’re at the checkout to make your purchases. The store assistant says you can get rewards on the spot if you pay with the store credit card. You just need to apply and be approved for it. What do you do?

A store credit card could offer you savings and perks now and in the future. But it could come with a high interest rate, and you may be limited in where else you can use it. So before you decide whether to apply for one, learn more about how they differ from other cards and when they might come in useful.

Key takeaways

• Store credit cards are issued by retailers and brands.
• A store credit card is a form of revolving credit in that you use it to make purchases and pay down the balance later.
• Store credit cards can come with pros, like additional perks and rewards when you use a store credit card at the store it’s associated with.
• Store credit cards can also come with cons—like more restrictions on where you can use them. 

Store credit cards, sometimes called retail cards, are offered by specific stores or chains of stores. Like all credit cards, store cards are examples of revolving credit. With revolving credit, you can make purchases and pay down the balance later in a billing cycle. And if your card issuer reports your use of the card to the credit bureaus, your card should appear on your credit reports.

Depending on the card, your store credit card might be different from other credit cards in a few ways. 

A big factor to consider is what type of card a store offers. There are generally two types of store credit cards: private label and co-branded general purpose.

• Private label store cards: Typically, this kind of card can be used only at the store or group of stores it’s associated with. And any rewards you earn might also be tied to purchases at those stores.
• Co-branded general-purpose store cards: Co-branded store cards can usually be used anywhere that accepts the payment network shown on the card. In addition to earning elevated rewards at the store or group of stores, co-branded cards may also offer the opportunity to earn rewards outside of the store.

Certain store cards may not seem any different from other credit cards in your wallet. Taking a closer look at things like rewards, credit limits and interest rates that are offered can help you compare cards.

A store credit card—like any other credit card—can be a great financial tool when used responsibly. Here are some possible benefits:

• You could use it to earn your rewards. Using a store credit card in the store it’s associated with might earn you better rewards than using a traditional rewards credit card in the same store would. 
• You could use it to build credit. With consistent, responsible use over time, store cards could help you build credit.
• You could earn bonuses. Certain store credit cards come with perks like promotional coupons, special financing or invitation-only cardholder events.

Here are some potential drawbacks of a store credit card:

• It may have a high interest rate. Typically, store credit cards have higher standard interest rates than traditional credit cards. 
• It may come with a low credit limit. Depending on the specific offer, limits on store credit cards—especially private label cards—tend to be lower.
• It might be more restricted in use. Compared to a traditional credit card, you might only be able to use private label cards at certain retailers or brands.

Like all types of credit cards that are reported to credit bureaus, store credit cards can affect your credit scores depending on how you use them. That’s why it’s important to use any credit card responsibly. Here are some ways that having and using a credit card, such as a store card, could affect your credit scores:

• Payment history: Your payment history shows how well you’ve done with making payments on time. The better your payment history, the better your credit scores might be.
• Credit utilization: Credit-scoring models generally pay close attention to your credit utilization ratio. This is a measure of how much of your available credit you’re using. Experts recommend keeping your overall credit utilization ratio below 30%.
• Credit mix: Credit-scoring models also take into account the variety of credit accounts you use. A store credit card could add to your proven experience handling different types of credit.
• Recent applications: New credit applications typically trigger hard credit inquiries. This is when a lender checks your credit reports to decide whether to approve your application. A hard inquiry can make your credit scores drop—usually by just a few points. But having too many hard inquiries in a short period of time could have a bigger negative impact.

Store cards can be a great financial tool when used responsibly. And depending on the card, they can offer discounts, exclusive benefits and access to experiences that aren’t available to the general public. 

Did you know Capital One issues co-branded store credit cards in partnership with a variety of retailers? Compare credit cards from Capital One to find a card that might work for you.

Whether your idea of a good time is getting out on the town, traveling the world or staying in, Capital One has a rewards card that may fit your lifestyle.

• See if you’re pre-approved for rewards cards, with no harm to your credit. 
• Explore travel and miles rewards credit cards with unlimited miles you can actually use. 
• Earn unlimited 1.5% cash back on every purchase, every day, with a cash rewards credit card.
• Earn unlimited cash back whether you’re going out or staying in, with a dining and entertainment credit card.