4 reasons why store credit cards are nearly always a bad choice

"Want to save 20% on your purchase today by signing up for our store credit card?"

If you're a frequent shopper, you've probably heard this pitch countless times. Retailers often entice customers with credit card sign-up offers at checkout, luring them in with discounts and other perks.

We’ve all been there – tempted to take advantage of a deal while shopping at our favorite stores. However, we often resist because, while the extra discount on a big purchase is tempting, store cards rarely offer lasting value.

Here’s why you should be cautious.

Limited rewards potential

Most store credit cards only offer substantial rewards for purchases made at that specific store, offering little real benefit unless you’re spending thousands annually at that retailer.

Take the Gap card, for instance: it gives you 5 points per dollar, but only on purchases at Gap Inc. brands (Gap, Old Navy, Banana Republic, and Athleta). You can redeem points for $5 rewards after accumulating 500 points.

If you spend around $100 each month with these brands, you'll earn just $60 in rewards by the end of the year—rewards that can only be used for in-store purchases. While a regular credit card may not offer 5 points per dollar, the points you earn can be redeemed for a wider variety of more valuable options.

These store cards often come with lackluster benefits. While spending a certain amount may earn you store status and more discounts, you won’t see the same range of perks that travel credit cards offer. Your rewards may be limited to that retailer alone.

Higher interest rates

At TPG, we always recommend paying off your credit card balance in full each month. Carrying a balance can be costly, no matter what kind of card you have. Unfortunately, many people find themselves with mounting debt, as the average American holds over $5,000 in credit card debt.

A study by CreditCards.com found that the average APR for store-only credit cards is over 28%, while general credit cards average below 23%. If you carry a balance, the higher APRs on store cards could end up costing you hundreds in extra interest payments.

Translation: The store benefits, not you.

Limited long-term benefits

Store credit card sign-up offers are based on a simple question: Do you want to save money today? Naturally, the answer is yes. Everyone loves a good deal. A one-time discount can be substantial if your purchase is large enough. However, many of these promotions come with limits.

For instance, with a Macy’s credit card, you can save 20% on your first day and the next, but the total discount is capped at $100. This is a great deal if you're spending $500 or more. But if your purchase is smaller (or larger), the savings may not be as worthwhile.

While the $100 discount is a nice perk, it's crucial to consider other factors that will matter long after the initial offer. Beyond understanding your APR, transaction fees, and other essentials, focus on the ongoing benefits of using the card, not just the first-day savings.

How often do you shop at Macy's? If you're a frequent Macy's shopper, the card could be valuable, offering 10% rewards on most purchases. However, if your visits are few and far between, the card isn't worth it long-term. You can use other cards to earn rewards at Macy's while enjoying additional perks.

Chase’s 5/24 rule

If you plan to apply for Chase cards in the future, it's important to plan your credit card applications carefully. Chase follows an unofficial '5/24 rule,' meaning they won’t approve you for a Chase card if you’ve opened five or more personal credit card accounts with any bank in the past 24 months.

Although some business cards are excluded from the 5/24 rule, almost every other card you open — including store cards — will count toward your 5/24 total. We recommend not risking future approval for valuable Chase cards (like their business and co-branded options) just for a low-value store card.

There’s a case to be made for not letting the 5/24 rule dominate your entire credit card strategy, but it’s something to keep in mind when considering a store card. You don’t want to miss out on top offers like those for the Chase Sapphire Preferred® Card or Chase Freedom Unlimited® just to chase a one-time 20% discount with a card you'll rarely use.

Even if you’re well under the 5/24 limit with Chase, applying for a store credit card will likely result in a hard inquiry on your credit report, causing a temporary dip in your credit score. While this impact usually fades within two years, you should carefully consider how applying for a store card might affect your score.

Is it ever worth getting a store credit card?

While a rewards credit card like the Chase Sapphire Preferred® Card is typically a better option, there are certain situations where having a store card can make sense.

Store cards are often easier to get approved for. When used correctly, they can help you build credit before upgrading to higher-value cash-back or travel cards. They can also improve your credit utilization ratio and help repair a low credit score.

If you spend a lot at a particular store, a store card might offer valuable rewards and discounts. Just make sure to calculate the potential rewards before committing to the card.

The key is to avoid carrying a balance on your store card. If you do use it, make sure to pay off the balance in full each month to avoid high interest rates.

Bottom line

It’s tempting to jump on high discount offers in exchange for signing up for a store credit card, but these cards usually offer little real value. In most cases, you'll be better off using rewards credit cards that earn cash back or transferable points. With high APRs, limited long-term benefits, lackluster rewards, and the impact on your Chase 5/24 status, store cards require careful consideration.

That said, store cards aren’t always a bad idea. In some cases, if your spending habits align, a particular store card can be worthwhile. The key is ensuring you can use it effectively to complement the other cards in your credit card portfolio.