Tips for choosing a retail card or credit card

Man with credit cards in each hand

It’s not uncommon to have a credit card and a retail card. While you may look at them both as small pieces of plastic you use to make purchases, there are distinctions. How do you know which one will meet your needs when you make a purchase? Start with understanding the differences between each type.

How does a credit card work?

Credit cards let you make purchases from any retailer that accepts the credit card company that issued the card (e.g. Visa, Mastercard, American Express), using a line of credit given to you by the card issuer. The line of credit lets you delay payment on the item until the credit card bill is due. At that time, you can choose to pay the balance in full, pay the minimum balance, or pay more than the minimum but less than the full amount. While it’s always best to pay your balance in full every month, your statement will indicate how much you may end up paying in interest over time if you choose to pay only the minimum balance or just a fraction of what you owe.

If you choose to pay less than the full amount, the remaining balance due will be reflected on the next month’s bill plus monthly interest charges could be added. In addition to the potential monthly interest charges, there could be annual fees added to the outstanding balance on the card. Some card issuers may offer a larger spending limit or other incentives to compensate for the annual fee, which can range from less than $100 to several hundred dollars. Many credit cards have no annual fees.

How does a store card work?

Most store cards operate just like a credit card. You make a purchase, the bill comes every month, and you make a payment. You don’t have to pay the balance in full each month and a store card is not likely to have an annual fee. If you do not pay the balance in full, you may incur a finance charge and pay interest on the remaining balance of the monthly bill.

Unlike a credit card issued by a major card company, which can often be used most anywhere, retail store cards can only be used in the store (or family of stores) that issued the card. For example, you couldn’t buy groceries with a store card issued by a department store. 

Lately, some retail stores have partnered with a major credit card company to issue store-branded credit cards. This type of card can be used wherever that major card is accepted, and in the store that issued the card.

Which one is right for you?

The type of card you use depends on your individual needs. Here are some reasons you may choose one type of card over another.

Limited use. Where you plan to use the card most often will impact which type of card you choose. If you want the flexibility of using it in many different places, then a credit card will work best. If you only want to use the card to shop regularly at a specific store, the store card may work better for you.

Rewards. It’s common for credit and store cards to offer rewards in the form of cash back or points that can later be redeemed for things such as airline tickets, hotel stays, gifts, or store merchandise. These rewards, often referred to as loyalty perks, are an incentive for you to use their card. These loyalty perks can be accumulated based on card usage. Cards sometimes offer a one-time, major up-front reward to get you to choose their card or switch from your current card to their card.

Convenience. You may choose one card for all of your purchasing needs. That way, all of your transactions are on one bill each month and you make one payment.

Interest rate. If you’re not able to pay off your balance in full each month, you may feel better knowing that you’re using a card like LGFCU’s Visa® Credit Card which has a low interest rate. Store cards often have the highest interest rates.

Keep these tips in mind the next time you’re considering what card to add to your wallet.

The advice provided is for informational purposes only.

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