A woman using a credit card at a store
Source: Getty Images

Store Credit Cards Can Be Good or Bad Depending How You Use Them

Danielle Letenyei - Author
By

Oct. 25 2022, Published 4:57 p.m. ET

You’re checking out at Kohl’s and the cashier asks if you want to save money on your purchase by opening a Kohl’s credit card. Who doesn’t like to save money, right? But opening a store credit card might not be the best decision.

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Keep reading to learn all about the pros and cons of opening a store credit card.

buying with credit card
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Are store credit cards worth it?

Just like most things in life, there are advantages and disadvantages to opening a store credit card. Whether a store credit card is worth it depends on why you are opening it and what you do with it after you get it.

On the upside, store credit cards are usually easier to qualify for and give you special offers to save money. Drawbacks to store credit cards include high-interest rates of over 20 percent, limited places you can use them, and low credit limits.

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kohls credit card
Source: Kohl's Facebook

There are two different types of store credit cards — open-loop and closed-loop. Closed-loop cards can only be used at the issuing retailer. For example, a Kohl’s card can only be used to buy items in-store or online at Kohl’s. Open-loop cards are co-branded by Visa or Mastercard and can be used wherever they are accepted.

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Why are store credit cards easier to get?

Store credit cards are usually easier to get than general credit cards, which may be attractive to people with less-than-stellar credit scores. A retailer can be lax on who it issues cards because credit limits are kept low, and APRs on the cards are high.

home depot credit cards
Source: Home Depot
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Stores prefer you to use their credit cards over other cards because they make money on the interest charged as well as the purchase price of the item you bought. On general credit cards, the interest goes to the bank that issued the card.

Are store credit cards good for building credit?

Because store credit cards are easy to get even if your credit isn’t the greatest, they offer a good option for people who want to rebuild their credit. However, if this is a reason why you are considering a store credit card, you should be prepared to pay the card off every month.

Otherwise, the high-interest rate you’re charged may cost you more than what you actually purchased.

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Are store credit cards bad for your credit?

If you don’t stay on top of paying your store credit card regularly, the card could have a negative impact on your credit score.

The low credit limit on store credit cards can also be bad for your credit.

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A big part of your credit health is tallied in your credit utilization. That is how much of your available credit you are actually using. Experts recommend using no more than 30 percent of your available credit to keep your credit score up.

With a store credit card’s low credit limit, it can be easy to go over the recommended credit utilization. If the limit on your Kohl’s card is $500, having more than $150 on your card can hurt your credit.

So, if you decide to open a store credit card, the best way to use it is to pay it off right away. That way, you can take advantage of the store's discounts and still protect or even improve your credit.

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