Merchant-issued Credit Cards

Are they worth it?

Merchant-issued credit cards are given to you directly by a private retail outlet instead of a bank or credit card company. These cards are often given out by upscale stores, gas companies and larger department stores. Many of these credit cards are designed to give you discounts on items purchased at that store, and/or they may have some type of rewards program in place.

While merchant-issued credit cards may make a lot of sense to you, especially if you do a lot of shopping at that particular store, you need to know all of the credit card conditions before signing up for one. One of the biggest reasons to turn down a store-offered credit card is the high interest rates they usually carry.

While the interest rate on an average bank credit card is usually around 13 to 14 percent, most merchant cards are charging 20 percent or more. This won’t really matter if you pay your bill off in full every month. However, if you revolve a balance on your card, it’s going to cost you big time, outweighing the small discount you receive on purchases from the retailer.

The minimum payment on these types of credit cards is usually higher than with bank-issued cards as well. Some people view this as a good point, as it means their debt will be paid off quicker.

Merchant credit cards can also affect your credit rating as the methods used to calculate your credit score are different with store credit cards than with bank cards. A wallet full of store credit cards that have balances on them will often make you appear to be a bigger risk to credit card companies. This means you will receive a lower credit score, which in turn means higher interest rates. However, if you own a few store credit cards with zero balances on them, it could possibly help your score. Even if you haven’t used your store credit cards for months, they are still looked upon as open lines of revolving credit on your credit report.

Many stores that provide credit cards to their customers also share your personal information and buying habits with other companies, meaning you are usually placed on marketing mailing lists.

If a merchant-issued credit card looks like too good a deal, make sure you ask the store questions about its policies before signing up.