No matter which retail store you enter today, you’re often welcomed by their employees offering you shopping credit cards. Signing up for a retailer’s shopping or catalog credit card can give you various benefits, and they are ideal for people who have fair or bad credit. However, shopping cards are not your typical credit cards, and they are affiliated with an exclusive brand, catalog or a store. Today, we are going to talk about these unique credit cards and help you learn everything there is to know about them.
What are shopping credit cards?
Most shopping credit cards have limited use. So, they can’t be used like traditional credit cards in any store that supports these types of payments. A brand or store issues a shopping credit card, and it can be used in their designated retail outlets.
This means that shopping credit cards are closed-loop credit cards.
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What is a closed-loop credit card?
Cardholders can use closed-loop electronic payment cards for purchasing items from a single company or store. These cards are also known as single-purpose cards, and they come with a logo on them. The logo represents the brand that issued them and indicates where they can be used.
The merchants issue their closed-loop cards on their own. They can be credit cards or debit cards. These credit cards can usually be acquired online on a website or directly at the merchant’s store. With closed-loop cards, card processing is simplified.
Closed-loop shopping credit cards issued by merchants directly don’t include a third party. This makes the whole process simpler and faster. The processing costs are also lower, leading to better conditions for customers.
Not all shopping cards are closed-loop
However, there are certain exceptions when it comes to shopping cards. It’s important to mention that they aren’t all closed-loop cards. Some companies co-brand their merchandise cards with major card issuers like American Express, Mastercard, or Visa.
Still, only a handful of companies offer co-branded shopping cards, and this subcategory has higher qualification criteria. They are quite similar to other credit cards, but they bring various benefits and rewards when buying at affiliated stores.
Store credit cards give shoppers the ability to stack up rewards that come in different forms. These rewards can be used for any given future purchase at that same store or retail chain. Shopping cards can offer various benefits. For example, some brands provide cards with exclusive financing deals through which consumers can pay off their balance over a specified period.
Who can benefit from using shopping credit cards?
Shopping credit cards are specifically designed for those people who have well-established shopping habits. Simply put, they know where they shop and when. If you have your favorite stores where you like to buy all of your products, then checking out if they offer their own dedicated cards is worthwhile.
We’ll get into the specific benefits of these types of credit cards later, but at their core, all of their benefits revolve around making constant purchases at the same store. The more you buy at the same place, the more benefits you will have, no matter what their form is.
They offer perks and discounts to frequent buyers, but not everyone can benefit from them. You shouldn’t look to get one unless you are frequent at that same store. For example, even if you buy everything at different places, but get your home appliances at a single store, it makes sense to get a separate shopping credit card for that store.
When is it a good idea to get one?
When used properly, shopping credit cards can be useful for building credit. It’s easier to get approved for them as the underwriting is more relaxed than with unsecured general-purpose cards. A shopping credit card can benefit you in case you:
- Frequently shop at the same place and would like to get more discounts and rewards.
- Have an interest in preview sales for which card-holders are eligible.
- Always keep your balance low.
- Regularly pay off your entire balance.
- Want to have an extended repayment period without interest.
How are shopping cards used?
Merchandise cards are used the same way as regular, general-purpose credit cards. However, they can be used only in specified stores or retail chains. Purchases are made using the card, and they can be paid off over a certain time. Like other credit cards, they require minimum payments to be made each month.
These credit cards also come with interest rates that vary from one provider to another. If you try to swipe a merchandise credit card at some other store, it won’t work. In some cases, they will if we are talking about co-brand shopping cards. The only fundamental difference between general-purpose cards and shopping cards is where they can be used.
They still come with interest in case you are carrying balance and credit bureaus get reports about your payment history. They can be used both online and offline depending on the store that’s offering them and how they set up their system.
How are merchandise credit cards different from other types of cards?
Even though merchandise credit cards don’t have major differences from their relatives, there are many underlying differences that can make a huge impact. After all, they do exist for a reason, and many brands make them because their customers can benefit from using them.
Here are some of the most important differences between shopping credit cards and other types of credit cards:
- Shopping credit cards are limited to purchases in a certain store or retail chain.
- They offer better conditions compared to general credit cards.
- Each of them is unique in terms of rewards and conditions depending on the retailer.
- They are closed loop cards.
The benefits of using shopping credit cards
Shopping credit cards are rapidly growing in popularity. Naturally, retailers also profit from these cards, or else they wouldn’t be making them. However, the buyers also get a lot of benefits from holding these cards. Here are some of the benefits you can expect with a shopping credit card:
- People that have poor credit can qualify for them easily.
- First purchase discounts.
- Sign-up incentives.
- Loyalty rewards.
- People who frequently shop at the same store can save money, earn rewards, and get balance benefits.
- They can get special discounts.
- Even if their credit score is bad, they can use these cards to purchase favorite products.
- Lower interests and fees compared to general credit cards.
- Faster transactions.
- Special early bird offers.
- They can be used for rebuilding credit history.
- Free shipping.
- Are good for inexperienced users and prevent them from overspending.
- Free alterations.
- No receipt returns.
- More days for returns.
4 Types of rewards shopping credit cards usually offer
Shopping credit cards come with various reward schemes attached to them. The rewards depend on the card issuer and the type of products or services that they offer to consumers. When choosing the right card for you, it’s important to find rewards that align with your lifestyle and shopping habits.
Here are the 4 most common types of rewards offered through shopping cards:
1. Retail rewards
These rewards are usually attached to large stores where you can buy a variety of products. Cardholders don’t get rewards after each purchase, but over time and with frequent purchases, they become eligible to receive rewards. The rewards come in different forms depending on the brand.
2. Cards with direct rewards
These types of shopping cards are linked directly with a reward program offered by businesses. This means that customers can redeem their rewards more quickly and easily.
3. Gas rewards
A lot of gas stations offer shopping cards partnered with rewards programs. If they have a large network of stations across the country, they want consumers to always fill up at their stations no matter where they are. These rewards can come in the form of a free car wash or a gas discount.
4. Point rewards
Various companies offer shopping cards through which buyers earn points on their purchases. These points can be redeemed for various perks and rewards ranging from discounts, gifts, free services, and so on.
10 important things about shopping credit cards
1. They are closed-loop cards
Shopping credit cards have emerged and evolved because of the closed-loop payment systems. As these systems have become available and more sophisticated, it was easier for retailers to utilize shopping credit card offers and cater to the needs of their customers. Closed-loop payment systems allow them to create more personalized offers for their customers.
This is why there are so many different shopping cards available, and each has different interest rates, discounts, rewards, scoring systems, and so on. Additionally, closed-loop cards typically rely on in-house platforms managed by retailers. This means that customers are holding cards owned by retailers and dealing with them directly.
2. They don’t require a credit score check
One of the best things about shopping credit cards is that they don’t require any credit checks. No matter if you are getting one directly at a store or you are applying for one online, no credit checks will be done. This means that these cards can be acquired by people who have bad credit.
Of course, this doesn’t mean that everyone gets them even if they are sometimes called as guaranteed approval cards. Some companies like to ask several questions and get a bit of information about potential cardholders. The issuers can decline an application if they wish to.
3. They have instant approval
As online shopping has become a common thing, various companies are getting on board with the trend by offering their shopping credit cards online. So, even if a person can’t find a shopping credit card at their favorite store, they can order one directly from the company website.
Even though they are ordered online, these applications are instantly approved, if the candidate passes of course. The process is the same when getting one in the physical world but you won’t have to wait until your card arrives via mail.
4. They come with interest rates
A lot of people think that these types of cards don’t have interests, and this is where they make huge mistakes. In fact, most shopping cards have fairly high-interest rates, higher than general-purpose credit cards. Their average APR is around 25% while the average with general-purpose cards is at 16%.
This means that you will have to pay more money whenever you carry a balance. Paying off this balance will also last longer. This is why it’s absolutely essential to ensure that you don’t carry a balance or that it’s as low as possible to avoid getting into a slump.
5. Shopping credit cards often involve special offers
As we mentioned earlier, shopping cards come with rewards in various forms. However, they can also include special offers that can benefit cardholders. For example, there are a lot of merchandise credit cards that come with special offers in the form of interest rates.
They might have significantly lower introductory rates that last for several months. Still, it’s important to look at what the interest rate will be once the special offer has run out. In many situations, retailers will offer special offers along with their cards to attract more people. But this doesn’t mean that you shouldn’t check out all of the specifics of card usage.
6. Their annual fees are low or non-existent
Shopping credit cards come in different varieties. Some have no annual fees while some require a once-a-year payment. However, if you see that you are getting whipped with a substantial yearly fee, you should think twice about getting that card. You will end up paying too much money for your shopping credit card.
As a general rule of thumb, it’s best to go with cards that have no annual for or low fee. However, if you are looking to get a lot of rewards while spending money, you will likely have an annual fee on the card. It’s all about weighing costs vs. benefits and applying them to your shopping habits.
7. They can be used online
In most cases, they are used for online shopping only, but some of them can be used for physical shopping. It all depends on the brand that issues the cards and what kind of shopping experience they offer to consumers. If they are an online retailer dominantly, the chances are that they will have cards for online shopping only.
On the other hand, if we are talking about a gas station company, they will be looking to encourage customers to buy fuel from them no matter where they are. In these situations, customers are able to use the cards on the register when paying for their gas tab.
8. There are no shopping fees
As dedicated cards for a single retailer, they don’t come with shopping fees. With a lot of different credit cards, “swiping” means paying for the bill while also paying for a fee on your purchase. Over time, these fees can accumulate to a substantial amount of money.
On the other hand, when shopping online, there are even more fees that all come down at the buyer’s doorstep. With shopping credit cards, there are no fees whatsoever. This means that you can freely buy anything you want and earn your rewards without worrying about any costs.
9. Processing is much quicker
Closed-loop cards have simplified processing, which means faster transactions. As we mentioned earlier, most shopping cards are closed-loop cards. Not only that they have dedicated systems for their cards that make everything smoother, but this usually means that the retailer doesn’t have a lot of card users to offer an open-loop card.
However, if you see that a brand is offering branded open-loop shopping cards, you should see if they provide a closed-loop version. If not, you can expect slower processing as well as higher interests or annual fees. This is simply because these cards cost more, and brands have to pay banks or payment processors for their services.
10. Shopping credit cards are designed for bad credit holders
Given the fact that most of these cards don’t require a credit score check or employee verification, they are perfect for people with bad credit. Shopping credit cards are not what they used to be, and today, even people with bad credit can get them.
However, people with bad credit will have their options limited. This may come in the form of higher interest rates on carrying a balance or fewer rewards. Not all merchandise credit cards are equal, and there are good options that can be approved quickly and used for improving credit scores.
Shopping credit cards are a great addition for customers that have well-established shopping habits. They can be used only in stores of a certain retail chain that offers the card and can help customers many rewards that come in various forms.
What’s great about them is that they don’t require a credit check and can be approved instantly. This also means that they can be used for improving the credit score and starting fresh. To learn more about how to use shopping cards for improving credit score, read more in our detailed merchandise credit cards guide.