Store credit cards: Advantages and disadvantages

This article has been updated from a previous version.

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Consumers have plenty of choices when it comes to choosing a credit card, from travel to cash back to low balance transfer cards. Each has a variety of benefits and serves their audience differently.

And then there are retailer credit cards. Store credit cards — which are credit cards that are specifically offered by a retailer (think a department store, or a grocery chain) — can be a great way to earn discounts at your favourite stores and offer extra perks the more you shop at the retailer. For these reasons, they suit frequent shoppers the best. However, for many households, a store credit card might not be their primary credit card.

Advantages of store credit cards

Store credit cards tend to handsomely rewards their loyal shoppers — and are offered by stores where rewards are most useful, like grocery chains and gas stations. Here are a few other reasons why you might consider getting one.

Low fees

Many store credit cards come with no annual fees and useful welcome offers. That is why they can make a great secondary credit card and addition to your wallet.

For example, the President’s Choice Financial® World Mastercard® and Walmart Rewards™ World Mastercard® have no annual fees and offer rewards from companies that many people routinely shop at.

Retailer discounts

Most retailers like to promote their credit cards as a great way to save money, and they usually deliver on that promise. Some may even offer $25 off your first purchase or something similar. After that, you may also receive discounts or earn double the reward points when you shop at specific stores. And, some of these cards aren’t exclusive to the brand featured, allowing members to earn rewards everywhere else they shop, typically at a lower point or cash back percentage.

Neo Financial is a Canadian fintech company with a cash back card that works like a store credit card — but rather than offering cashback with a single retailer, it has partnered up with thousands of well-known Canadian brands. The company is currently running a promotion with RATESDOTCA offering a $50 bonus at sign-up.

While everyone loves saving money, make sure you don’t overindulge and go on a spending spree. A store credit card is just like any other credit tool — if you’re not able to pay back your balance in full after every billing period, you may end up paying more in interest than what you would have saved in discounts.

Membership perks

Apart from general in-store or online discounts, many store credit cards offer membership perks. Cardholders may be able to return items without a receipt or take advantage of extended returns, attend members-only events, enjoy free shipping, or access financing and installment plan options.

Disadvantages of store credit cards

If you're looking for a primary credit card to help build credit or to fully maximize your spending, a store credit card might not be the best option. Here are two reasons why.

Less flexible rewards

Store credit cards generally offer the greatest rewards value when purchasing with the brand and allow customers to redeem points exclusively with the store or its partners. This can be great for a loyal customer, but other rewards cards typically offer more flexible redemption options such as travel rewards or merchandise and allow cardholders to earn points within more spending categories.

Low credit limits

If you’re looking for a high credit limit, you may have to look elsewhere. Store credit cards often have a lower credit limit than other credit cards. If you carry a balance, this can harm your credit score. For example, if your credit limit is $2,000 and you’re carrying a $2,000 balance, your credit utilization will be 100%, which is well above the recommended 30%.

However, if a large financial institution backs a store credit card, this may not be the case.

Do your research

Regardless of what type of credit card you’re looking for, it pays to shop around. You can compare and search for the best credit cards all in one place on RATESDOTCA.

Read next: Beginner’s guide to credit card points