It seems like every time you check out at a store, the sale associate offers you a retail credit card – and it seems harmless enough, with all the cashback and discounts. However, they can be financially hazardous due to high interest rates, fees, and clauses that may impact a consumer’s credit scores negatively. Despite the allure of any initial discounts, the long-term consequences of these cards, such as high utilization ratios and potential penalties, can outweigh their benefits.
However, for consumers who shop frequently at certain retailers – and those who can manage their credit responsibly – some retail credit cards offer significant perks and rewards. Read on to learn how you can tame these wild investments for your own benefit.
What are retail credit cards?
Retail credit cards are credit cards issued by specific retail stores or brands, often offering rewards and benefits tailored to frequent shoppers of those retailers. These cards typically provide perks such as discounts, points, or cashback on purchases made at the issuing store. However, they usually come with higher interest rates and lower credit limits compared to general-purpose credit cards.
Pros and cons of retail credit cards
Retail credit cards have several good qualities, such as:
- Perks – These include special discounts, reward points, or cashback on purchases made at the issuing store, which can add up to significant savings for frequent shoppers.
- Special Financing Offers – Promotional financing options, such as interest-free periods for large purchases.
- Exclusivity – Members-only sales, early access to new products, and other special promotions.
- Building Credit –Retail credit cards can be easier to obtain than general-purpose credit cards, helping to build or improve credit scores.
Positives notwithstanding, there are several things you should also consider when it comes to retail credit cards:
- High Interest Rates – Retail credit cards often come with higher interest rates compared to standard credit cards, which can lead to expensive debt if balances are not paid in full each month.
- Low Credit Limits – These low credit limits increase the credit utilization ratio and potentially harm credit scores.
- Limited Usability – Some cards can only be used at the issuing store, limiting their flexibility and utility.
- Fees and Penalties – Hidden fees such as annual fees, late payment fees, and penalties for missed payments.
Finding your perfect retail credit card
To ensure that you’re getting all the good parts of a retail credit card and leaving the bad behind, keep in mind the following points as you’re looking for the one that best suits your lifestyle:
- Interest rates – Retail credit cards often come with higher interest rates compared to general credit cards – if balances are not paid in full each month, the interest charges can quickly negate any of the card’s great perks.
- Credit score – Opening any new credit card results in a hard inquiry on your credit report, which can lower your credit score temporarily.
- Fees and clauses – Late payment fees and inactivity fees can be a huge pitfall with retail credit cards. Some cards may also have clauses that allow the issuer to close your account due to inactivity, which can reduce your overall available credit.
Additionally, don’t forget to ensure that your preferred card’s rewards align with your spending habits. A card offering high rewards at a store you rarely shop at may not be in your best interests.
Best retail credit cards
If your interest is piqued by the benefits of retail credit cards, but you’re not quite certian which ones to pick, the following cards offer some great benefits at reasonable costs:
1. Amazon Prime Rewards Visa Signature Card
– Cashback: 5% back on Amazon and Whole Foods purchases, 2% back at restaurants, gas stations, and drugstores, and 1% back on all other purchases.
– Annual fee: $0
– Other perks: No foreign transaction fees.
Apply now: Amazon Prime Rewards Visa Signature Card
Learn more: Amazon Prime Rewards Visa Signature Review
2. Target REDcard
– Cashback: 5% discount on Target purchases, along with exclusive offers and deals.
– Annual fee: $0
– Other perks: Free two-day shipping on eligible items, and an extended return period.
Apply now: Target RedCard Credit Card
3. J Crew Credit Card
– Cashback: Earn 2 point for each dollar spent, and get a $5 reward for every $100 spent.
– Annual fee: $0
– Other perks: 15% off your first purchase the same day you open the card in-stores, and earn birthday cash dependent on how much you spent at the store in a year.
Apply now: J Crew Credit Card
4. Wells Fargo Active Cash Card
– Cashback: unlimited 2% cash back on all purchases
– Annual fee: $0
– Other perks: with a $200 cash rewards bonus after spending $1,000 in purchases in the first 3 months.
Apply now: Wells Fargo Active Cash® Card
Read more: Wells Fargo Active Cash Review
5. Wells Fargo Reflect Card
– Cashback: 5% cashback up to $1,500 on categories that rotate quarterly.
– Annual fee: $0
– Other perks: 0% intro APR on purchases and qualifying balance transfers for up to 21 months, followed by a variable APR.
Apply now: Wells Fargo Reflect Card
Read more: Wells Fargo Reflect Review
6. Costco Anywhere Visa® Card by Citi
– Cashback: 4% cash back on eligible gas, 3% on restaurants and travel, 2% on Costco purchases, and 1% on all other purchases.
– Annual fee: $60
– Other perks: No annual fee if you are already a Costco member.
Apply now: Costco Anywhere Visa Card by Citi
Using retail credit cards the right way
Retail credit cards are a great resource, but they can also be a dual-edged sword. Their substantial rewards and benefits for loyal customers come with potential high interest rates that can lead to long-term financial consequences. However, by carefully evaluating the terms, along with your own shopping habits, you can make an informed decision that leverages advantages while minimizing risks. If you’re the kind of person who pays off balances in full every month, then congratulations – your first retail credit card will be a breeze. But if you have some outstanding balances on your cards, don’t worry. You now have the tools to get yourself a retail credit card while avoiding pesky interest charges and maintaining a healthy credit score.
