Like most personal finance bloggers, I love to rant about why store credit cards should be avoided like the plague. The drawbacks are plentiful; they’re of limited use, come with high APRs, use deferred 0% financing, and the list goes on.
But are we giving them too much flack? Maybe. Store credit cards are sometimes a logical choice. Here are five scenarios where having one might actually make sense.
1. You are rebuilding credit history. When your credit is stuck in the gutter, your choices for cards are few and far between. Assuming you don’t want to pay $400 per year for a questionable offer, your only options will probably be secured cards and entry-level store cards.
When going the secured route, the biggest advantage is that it allows you to get a major credit card (Visa or MasterCard) despite your bad credit. However, the not-so-nice thing is that most secured cards charge fees. Paying for one or two is okay, but you certainly don’t want to pay for several.
This is where a store card comes in handy. Because many have lax requirements for approval, you may be able to attain one even if you have lackluster credit. Since most don’t charge an annual fee, they can be a good credit card to rebuild credit.
That being said, it’s not a good idea to use only store cards for rebuilding credit, but using them in conjunction with a secured Visa or MasterCard will give you a more robust credit report.
2. You buy a lot at the store. Even if you get 3 to 5 percent rewards, it’s not worth applying for an account if you only spend a few hundred dollars per year at the retailer. Think about it: 3 percent of $500 would only equal $15. Hardly worth the hassle, right?
However, the best store credit cards will make sense if you’re a loyal patron. For example, the Target card gives you 5 percent cash back on everything you buy. For a family who spends thousands per year at Target, the 5 percent will equal some serious moolah.
3. You won’t qualify for financing elsewhere. Stroll into any furniture store, tire shop, or electronics retailer and there’s a good chance they will peddle you their 0% financing to pay for a big purchase.
The biggest problem with these offers is that they use deferred financing. That means you are required to pay back the entire borrowed amount before the 0% promotion ends. If you don’t, your account will get charged interest going back all the way to the date of purchase. Ouch.
For this reason, if you have good credit, obviously it’s more logical to use a major credit card offer with 0%. That way, if you don’t pay it off in time, you won’t be slapped with the interest retroactively. However, if you can’t qualify for one, then the store’s 0% financing may be your only option. It will make sense so long as you pay it off in time.
4. You can’t get the coupons elsewhere. One of the biggest selling points of getting a store card is the coupons that come with it. A lot of times they’re not worth it, because a simple Google search will uncover comparable discount codes and printable coupons–no credit card required.
On the other hand, it’s not always possible to score these savings elsewhere. If that’s the case and you spend a lot at the retailer, then getting the card might be worthwhile.
5. You are making a gigantic purchase. Saving 10 percent off your first purchase at JC Penney is hardly exciting, considering that there are “normal” credit cards that give you a new account bonus of $200 to $500. But what if your purchase is going to be astronomically big? Does that make the one-time 10 percent or 15 percent discount worth it? Perhaps it does. Namely at home improvement stores.
Let’s say you’re remodeling your kitchen from top to bottom; new appliances, cupboards, flooring, and the whole nine yards. That may be several thousand dollars (or more) you’re about to plop down. If you do it strategically all in one purchase, that little 10 percent or 15 percent might equal some big savings of up to a $1,000 or higher.
Michael Dolen is the CEO of CreditCardForum. There, you will find him talking more about credit cards to rebuild credit and sharing his in-depth reviews of store cards.