Best -- and most rewarding -- store credit cards
(MoneyWatch) Tempted to get a credit card issued by a retailer like Target, Walmart, Macy's or Bloomingdales? If you're the type of buyer who carries a balance, step away. These cards charge killer interest rates that will quickly eat up any incentive the retailer might offer to lure you into applying for their plastic. But if you're a person who pays off credit card balances each month, getting the right store-issued credit card can be a highly rewarding choice.
That's the conclusion of a new Consumer Reports study of 15 store-issued credit cards offered by the nation's top retailers. Whether it's because of discounts or special sales offered exclusively to card-holders, securing the right store-based credit card can save you a bundle. It can also be easier to qualify for store credit cards than traditional bank cards, so they can be a wise choice for young adults looking to establish credit too.
Which are the best cards? To a great degree, that depends on where you shop. Almost all of the cards provide better rewards for shopping within their own stores. Sometimes the difference is dramatic.
Consider the plastic offered by Banana Republic/Athleta/Gap/Old Navy and Piperlime. If you use the store-issued credit card to make purchases in any of these stores, you get 5 points for each $1 spent. Since every 1,000 points gets you a $10 gift certificate, each point is worth about a penny. In other words, in-store purchases pay you a nickel per dollar. But if you use the cards somewhere else and you get just 1 penny per dollar.
This card goes one better, though. If you want their email updates, they'll give you 2,000 bonus points - about $20. And you get a discount of 15% on your first purchase when you sign up for the card, so save your application for a day when you're buying big.
That said, make sure you read the fine print when applying for store credit cards. Some retailers have reward gotchas that can make their programs less valuable, according to Consumer Reports.
JC Penny, for example, pays rewards in coupons that expire in a month. If you don't spend them, the reward is lost. Other retailers, including L.L. Bean, BJs and Cabela's, have expiration dates on their reward coupons too. But none expire quite as quickly as the coupons offered by Penny. (Perhaps when Penny's new CEO Ron Johnson finishes revamping the company's annoying pricing policies, he'll turn his attention to the credit card rewards.)
And Macy's has a tiered reward structure, giving nothing to the little people who spend less than $500 in the store annually, while lavishing a 3% reward, plus access to priority customer-service lines, for those spending upwards of $1,000 a year.
If you're into the cache of seeing and being seen in the right retailing places, you might want to get a credit card issued by a luxury retailer like Nordstrom, Bloomingdale's or Neiman Marcus. The discounts are nothing to write home about, but use those cards a lot and they're likely to invite you to special events, like fashion shows and private sales.
If you want simple, look to Target, where using a Target charge card lands you a 5% discount at the check-out stand. No hassle. No coupons. No tiers. Just a nice little discount.
Barnes & Noble has a similar program, but instead of a discount, it applies the 5% reward as a credit to your statement, while providing a $25 gift card with your first purchase.
Check out Consumer Reports' full survey to find out which retailers offer the best rewards and precisely how much they deliver.
Or if you're interested in other types of rewards - like rewards for travel or those offered to young adults who need to establish credit, see our related stories 5 Best credit cards for new graduates and Best travel rewards cards.
