Store Credit Cards vs. Traditional Credit: What’s the Difference?

Store cards are usually ones that you may use with specific retailers. Examples of such cards include the Target RedCard Credit Card and My Best Buy Credit Card. A regular credit card, on the other hand, is one that you may use with any merchant that accepts payments from the network your card is linked to, be it Visa, Mastercard or American Express.

A co-branded card can serve as a rather effective middle ground. These cards are issued by conventional credit card providers and have tie-ups with various brands. Like store cards, they offer better rewards when you shop with the brand in question, but you also have the freedom to use them elsewhere. The Costco Anywhere Visa Card by Citi qualifies as a good co-branded card, as does the Capital One Walmart Rewards® Mastercard®.

• Store Credit Cards vs. Traditional Cards
• What Are Co-Branded Credit Cards?
• Store Credit Card vs. Regular Credit Card vs. Co-Branded Credit Card
• Best Regular Credit Cards
• Best Co-Branded Credit Cards
• Best Store Credit Cards

Store cards are usually closed-loop in nature, meaning you may use them only with specific retailers. Regular credit cards are open-loop and operate using widespread payment processing networks. You may use most such cards globally, not just to make payments but also to withdraw cash from ATMs.

Co-branded cards tend to find their way into the store card vs. credit card comparison because they can give you the best of both worlds. A co-branded card is issued by a conventional credit card provider and is linked to a specific brand, be it a retailer, an airline or a group of hotels. Most such cards offer high reward rates when you spend through the brand in question, and you may enjoy additional brand-specific perks.

Some popular retailers offer both a store card and a co-branded card. For instance, while you may apply for a Bed Bath and Beyond credit card that is issued by Comenity Capital Bank, this chain of retail stores offers a store card too. This is also the case with Best Buy. It offers a store card and a Visa credit card issued by Citi.

While there are similarities in how store, regular and co-branded cards work, paying attention to the differences can help you decide which card type is best for you.

Approval

Conventional credit card providers follow more stringent guidelines than retailers that provide store cards when it comes to the approval process. Several retailers encourage customers to apply for store cards during checkout by offering to link promotions to their purchases. The application process for most store cards is fairly straightforward, and you can usually expect a near-instantaneous decision.

Plus, you may qualify for a store card even if you have less-than-perfect or poor credit. The lowest credit score you need to qualify for a store card depends on the retailer you select but usually varies between FICO scores of 550 to 660. Going forward, using your card responsibly and making all your payments on time helps you build your credit score. Bear in mind that applying for a store credit card, much like a regular credit card, will typically cause your credit score to temporarily drop by a few points.

Limit of Use

When you get a store card, you may use it only at stores that are part of the retail chain in question. For example, you may use the Target RedCard Credit Card only at Target stores. You cannot use this card to get a cash advance or transfer a balance from another card.

If you get a regular or co-branded card, you have considerable freedom in where you may use it, especially if it’s linked to popular networks such as Visa and Mastercard. The Target RedCard Mastercard, for instance, lets you withdraw cash from ATMs, and you may use it globally without worrying about paying foreign transaction fees.

Interest Rates

It is common for even the best store credit cards to come with higher APRs than regular or co-branded credit cards. Compare the average credit card APR of 14.39% across MoneyGeek’s data set of over 2,200 credit cards with store cards that have APRs of well over 20%, and you’ll notice that there’s a considerable difference. As a result, while paying off your credit card balance in full each month is ideal, it becomes all the more important if you get a store card. If you don’t, you may end up paying a tidy sum as interest charges.

Introductory Offers

Store cards generally do not provide a monetary welcome bonus to new cardholders. Instead, many offer a large discount or similar benefit on your first purchase to encourage customers to buy more.

By comparison, many regular and co-branded cards have welcome offers, such as spend-based bonuses and 0% APR offers on purchases and balance transfers.

The Capital One SavorOne Cash Rewards Credit Card lets you earn an early spend bonus of $200 by spending $500 on purchases in the first three months. It also comes with an intro 0% APR offer on purchases and balance transfers for the first 15 months. Similarly, the Hilton Honors Card from American Express lets you earn a welcome bonus of 100,000 points by spending $1,000 on purchases in the first three months. Both cards have no annual fees.

Credit Limit

Store cards typically have lower credit limits than most conventional credit cards. Depending on the card you get, your initial limit could be between $300 and $500. Traditional and co-branded cards can come with noticeably higher credit limits that can even be upward of $10,000, although this depends on the card you have, your creditworthiness and your income.

Rewards/Benefits

Store cards let you earn rewards when you purchase through that specific retailer. For instance, the My Best Buy Credit Card offers 5% back on all Best Buy purchases. However, you cannot use your Best Buy store card with other merchants. My Best Buy Visa Card, on the other hand, lets you earn rewards on other purchases as well, and it comes with a few bonus categories. Regular and co-branded cards may also come with additional benefits such as complimentary insurance coverage, no foreign transaction fees, statement credits and airport lounge access.

>>More: Flexible Points vs. Miles: Which Credit Card Reward Is Better?

Credit Score

Store cards can affect your credit score in the same way as regular and co-branded cards, for better or worse. Since providers of store cards follow less stringent eligibility criteria, getting one is easier than a regular card if you have a thin credit file or a low credit score. If you have a short or poor credit history, you may use a store card as an effective tool to build or rebuild your credit.

Applying for a new store card usually involves a hard credit inquiry, which will cause your credit score to drop by a few points. As with regular credit cards, paying off your store card’s balances in full each month can help improve your credit score.

You also need to pay attention to your card’s credit utilization ratio, especially if it’s your only card, as this is an important factor in calculating your credit score. Your credit utilization ratio refers to how much money you use from your card’s limit and should ideally remain below 30%. So, if your card comes with a limit of $500, you should try to use no more than $150 at any given time.

>>More: What Does Your Credit Score Start At?

There is no single best credit card because all the top options are designed to meet specific requirements. For instance, while some are ideal for people who wish to capitalize on their overall spending, others are more suited for those who wish to earn rewards through their favorite brands.

The best regular credit cards are typically ones that come with welcome offers and higher-than-usual reward rates.

The best co-branded cards are ones that offer high reward rates when you use your card to pay for purchases through the brand in question. They may also come with other brand-specific benefits.

There are many different rewards cards to choose from, so it’s important to pay attention to both your individual preferences and parameters such as reward rates, welcome bonuses, annual fees and APRs. This holds true regardless of whether you are considering applying for a rewards card, a travel card or a cash back card.

Bear in mind you’ll only be able to use a store card at the retailer in question. No matter how good your credit score is, chances are you’ll start off with a relatively low credit limit. Carrying balances from one billing cycle to the next is not a good idea because you’ll need to pay high interest charges unless the retailer offers a 0% APR interest promotion on your purchases. Additionally, you’ll need to redeem the rewards you earn through the same retailer. To help you determine if you might benefit from a store card, we have put together a list of some of the top cards that deserve your attention.

Go through answers to other commonly asked questions about store credit cards to determine if getting one or more might work well for you.