Store credit vs credit cards: What’s the difference?

To help you navigate which one is best for your needs and whether store credit is worth applying for, we outline how store cards differ from credit cards.

What is store credit?

A store credit card is a credit card offered by a specific retailer that provides you with a credit facility that you can use for purchases at that retailer only or within their retail group. Similar to a traditional credit card, it has set limits, and you need to pay it back on a monthly basis, but you’re limited to where you can use it and, therefore, limited to the type of purchases you can make.

BENEFITS OF STORE CREDIT CARDS

Compared to a traditional credit card, store credit cards differ in the following ways:

Application: Applying for a card in-store is quick and easy and can be done at check-out with basic information and your ID, which also makes it easier to be approved, while a credit card requires proof of income and residence, plus minimum monthly earnings.

A note of caution, just because it’s convenient to open credit at your favourite retailer, be careful that you aren’t opening it on a whim.

Exclusive benefits: Most retailers provide additional discounts and member-only deals when you open a store credit card.

Build or rebuild credit: Since the criteria for approval are different, a store credit card could be the only credit that someone has access to. In this case, if used responsibly, it could help (first-time) card users build a credit history.

Higher rewards: Store credit cards provide rewards that can be spent specifically at that retailer or retail group. Sometimes, the reward rate or cash back can be higher, which could make shopping with your store credit card a cost-effective option if managed well.

DRAWBACKS OF STORE CREDIT CARDS

Limited use: A store credit card can only be used at that specific retailer or retailer group, making it less convenient to use compared to a credit card that can be used anywhere and anytime. You also can’t use it for as many reasons as a traditional credit card. For example, you can’t access it for emergencies, and it can’t be used for security deposits.

Lower credit limits: The amount of credit you can access is typically lower on a store credit card than on a traditional credit card. Different interest rates: With a credit card, you can get a personalised interest rate, but store credit cards come with fixed interest rates that can be higher than traditional cards.

Limited rewards earned: Although there might be great perks, exclusive offers and good loyalty rates, they can only be spent at that retailer on those products, whereas normal credit card rewards can be used for a variety of reasons at various retailers.

Incentives encouraging overspending: ‘Good deals’ can be tempting, but remember, they still cost money, so don’t be seduced into spending more than you would’ve. Only use it to buy what you intended to buy.

CHOOSING THE RIGHT ONE FOR YOU

If you’re a loyal customer who frequently spends significant amounts at a specific retailer, a store credit card can be handy, but if you only occasionally shop at a store or make small purchases, it might serve you better to stick to a credit card.

KEEP IN MIND

If you already have a credit card, it might not be worth opening a store credit card because an additional line of credit adds to the percentage of credit you are using, which could lower your credit score and make it difficult to access credit in the future.

And if you’re still deciding between a credit card or a store card, it’s a good idea to first check how much you qualify for, so you can make an informed decision.

Whether you have a credit card and/or a store credit card, credit should be used purposefully and mindfully. It’s easy to get carried away and spend more than you can afford to pay back, which could lead to taking on unnecessary debt. If you are struggling to meet your financial obligations and feel like you’re in over your head, our Debt Care Centre can help.