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 with fair or bad credit. However, shopping cards are not your typical credit cards; they are affiliated with an exclusive brand, catalog, or store. Today, we will 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 supporting these payments. A brand or store issues a shopping credit card that 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 to purchase 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 card merchants 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 credit 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 similar to other credit cards but bring various benefits and rewards when buying at affiliated stores. Store credit cards allow shoppers to stack up rewards that come in different forms. These rewards can be used for future purchases 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 catalog shopping credit?
Shopping credit cards are specifically designed for 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 dedicated cards is worthwhile. We’ll get into the specific benefits of these types of credit cards later, but at their core, they all revolve around making constant purchases at the same store. The more you buy at the same place, the more benefits you will have, regardless of their form.
They offer perks and discounts to frequent buyers, but not everyone can benefit from them. You shouldn’t look to get one unless you frequent that same store. For example, even if you buy everything at different places but get your home appliances at a single store, getting a separate shopping credit card for that store makes sense.
When is it a good idea to get one?
When appropriately used, shopping credit cards can help build credit. Getting approved for them is easier 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.
- I am interested in preview sales for which cardholders 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 can be paid off over 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. Sometimes, they will if we talk about co-brand catalog shopping credit. The only fundamental difference between general-purpose cards and shopping cards is where they can be used.
They still carry interest if you have a balance, and credit bureaus get reports about your payment history. Depending on the store offering them and how they set up their system, they can be used online and offline.
How are merchandise card offers different from other types of cards?
Even though merchandise credit cards don’t differ significantly from their relatives, many underlying differences can make a huge impact. After all, they exist for a reason, and many brands make them because their customers can benefit from them. Here are some of the essential differences between shopping credit cards and other types of credit cards:
- Shopping credit cards are limited to purchases in a particular store or retail chain.
- They offer better conditions compared to general credit cards.
- Each is unique in terms of rewards and conditions, depending on the retailer.
- They are closed-loop cards.
The benefits of using shopping cards
Shopping cards are rapidly growing in popularity. Naturally, retailers also profit from these cards or wouldn’t make 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 who have poor credit can qualify for them quickly.
- First purchase discounts.
- Sign-up incentives.
- Loyalty rewards.
- People frequently shop at the same store can save money, earn rewards, and get balance benefits.
- They can get special offers and discounts.
- Even if their credit score is bad, they can use these cards to purchase their favorite products.
- Lower interests and fees compared to general credit cards.
- Faster transactions.
- Special early bird offers.
- They can be used to rebuild credit history.
- Free shipping.
- They are suitable 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 they offer consumers. Finding rewards that align with your lifestyle and shopping habits is essential when choosing the right card. Here are the four most common types of rewards offered through shopping cards:
1. Retail rewards
These rewards are usually attached to large stores where you can buy various products. Cardholders don’t get rewards after each purchase but become eligible to receive rewards over time and with frequent purchases. The rewards come in different forms depending on the brand. Like Horizon Card Services, Unique Card Services, or Credit America
2. Cards with direct rewards
These 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
Many gas stations offer shopping cards partnered with rewards programs. If they have an extensive 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 as 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, etc.
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 has become 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 credit checks will be done if you get one directly at a store or apply for one online. 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 asking several questions and getting some information about potential cardholders. The issuers can decline an application if they wish to.
3. They have instant approval
As online shopping has become common, various companies are getting on board with the trend by offering their shopping credit cards online. So, even if people 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. The process is the same as 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
Many people think these types of cards don’t interest them, and this is where they make huge mistakes. Most shopping cards have relatively high interest rates, higher than general-purpose credit cards. Their average APR is around 25%, while the average with general-purpose cards is 16%. This means you will have to pay more whenever you carry a balance. Paying off this balance will also last longer. This is why it’s 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. Catalog shopping credit often involves 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, many merchandise credit cards come with special offers in the form of interest rates. They might have significantly lower introductory rates that last for several months. Still, looking at the interest rate once the special offer has run out is essential. In many situations, retailers offer special offers along with their cards to attract more people. But this doesn’t mean 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 with no annual fees or low fees. However, if you are looking to get a lot of rewards while spending money, you will likely have a yearly 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, but some can be used for physical shopping. It all depends on the brand that issues the cards and what kind of shopping experience they offer 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 can use the cards on the register to pay 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 many different credit cards, “swiping” means paying for the bill while paying a fee on your purchase. Over time, these fees can accumulate to a substantial amount of money. On the other hand, when shopping online, even more fees come down at the buyer’s doorstep. With shopping credit cards, there are no fees whatsoever. This means you can freely buy anything and earn rewards without worrying about 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 do 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 a brand offers branded open-loop shopping cards, you should know if they provide a closed-loop version. You can expect slower processing and higher interest rates or annual fees if not. This is simply because these cards cost more, and brands must pay banks or payment processors for their services.
10. Shopping credit cards are designed for bad credit holders
Most of these cards don’t require a credit score check or employee verification, so they are perfect for people with bad credit. Shopping credit cards are not what they used to be; today, even people with bad credit can get them. However, people with bad credit will have limited options. This may result in 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.
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Key Takeaways
Shopping credit cards are an excellent addition for customers with well-established shopping habits. They can be used only in stores of a particular retail chain that offers the card and can help customers with various rewards. 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 to improve credit scores and start fresh. To learn more about how to use shopping cards for improving your credit score, read more in our detailed merchandise cards guide.