You’re probably familiar with the major credit card brands like Visa and Mastercard, but perhaps you’ve also been offered store cards. Are store cards really worthwhile? Here are some of the pros and cons of using store credit cards.

What are Store Cards?

A store card works much like a traditional credit card–you use the card to make purchases and you can pay it back over time (with interest). The biggest difference is that a store card can generally only be used to make purchases with a specific retailer. Some retailers do offer major credit cards that can be used everywhere. However those aren’t really store cards. They’re traditional credit cards that just feature a company’s branding, and they’re called co-branded credit cards (like the Woolworths Everyday Money MasterCard).

Store Card Benefits

The primary benefit of store cards (and how they often entice consumers to apply in the first place) is a discount. Store card holders often receive a significant discount on their first purchase with the card. They may even receive discounts on all purchases, get special promotions and coupons, or earn rewards such as gift cards when they reach a certain dollar amount. Some consumers also find that store cards and petrol cards can be easier to obtain than major credit cards, making them a possible option for your first credit card.

Drawbacks of Store Cards

While the allure of deep discounts can make store cards an appealing option, there are some serious downsides. For example, store cards often carry high interest rates. They can be marketed as a way to finance a large ticket purchase, but if you actually take that approach you can end up paying more than if you charged the item to a regular credit card.

The more obvious problem with store cards is the fact that they can only be used for purchases with the company you got the card from. That might serve as an incentive to spend more than you otherwise would with that retailer. It also means that you can’t rely on that store card for emergency funding like you can with traditional cards. Although retailers now are teaming up with issuers to launch traditional credit cards with store branding e.g. David Jones, Myer and Woolworths. They focus on a rewards program built around each retailer.

Store cards, like all credit cards, have their ups and downs. Whether a store card is right for you depends on your own spending habits. For instance, if you already spend a great deal of money with a retailer, the rewards you could earn with their store card could outweigh the drawbacks. On the other hand, if you prefer more freedom in where you shop and you like to compare prices instead of being devoted to particular stores, a store card may end up costing you much more than you’d save.