Introduction to Store Co-branded Credit Cards (Store Credit Card)

What Is a Store Co-Branded Credit Card?

A store co-branded credit card (Store Credit Card) is usually a credit card issued jointly by a major brick-and-mortar or online retailer and a bank. For example, Amazon Store Card, Citi Costco, and Target RedCard are all familiar store credit cards.

Just like airline and hotel co-branded cards, the merchant and the bank negotiate whether to issue the card. The issuing bank can also change over time. For example, Walmart’s co-branded card used to be issued by Synchrony Bank and later switched to Capital One. That was kind of an upgrade. But relatively speaking, most store credit cards are partnered with smaller banks. Synchrony Bank is probably the biggest player; reportedly it has as many as 116 cards. In terms of service and benefits, that is nowhere near banks like Chase or AMEX. Compared with airline and hotel co-branded cards, store credit cards are generally easier to get approved for. For people with weaker credit histories, starting with a store credit card is also one possible path.

The usual benefits of a store credit card are extra rewards at the corresponding merchant. For example, Target RedCard offers 5% cash back at Target. You can also take part in special store promotions. For example, Amazon Store Card sometimes offers 10%-20% cash back categories during the holidays. Sign-up bonuses are also tied to store purchases; for example, Macy's credit card offers 20% off purchases made on the day you open the card. Some large merchants and banks, such as Costco’s co-branded card, also offer extra rewards on gas, dining, and travel, which are more common perks. One benefit that may be more useful for Americans is that store credit cards usually offer decent financing options. In other words, when you use the store credit card to shop at that merchant, you may get several months of low-interest or interest-free financing. For example, Americans like to spend ahead of time; if you buy some furniture at Lowe's, you can use a Lowe's card to get a few months of low-interest financing and pay it back slowly when your paycheck arrives.

One thing to be especially careful about is that a store co-branded credit card is still, at its core, a credit card. In most cases, when you apply, the issuer will pull your credit report, creating a hard pull and affecting your credit score. Likewise, after you are approved, the card will be reported to the credit bureaus, and the appearance of a new account will also affect your credit score. And if there are any balances, late payments, or severe delinquencies, those will also be reported to the credit bureaus and affect your credit score.

What Are the Common Pitfalls?

Why start by explaining the possible pitfalls? Because store credit cards have far more traps than the cards issued by major banks. If you are not careful, the chance of getting played is quite high.

Pressure to Apply

When people go shopping, cashiers often recommend applying for the store’s own credit card at checkout. This is less common at Lowe's, Staples, and Best Buy, but for department stores like Macy's and Nordstrom, if you buy a little more, the staff will be especially enthusiastic about recommending it. The usual pitch is that the card offers a certain discount, lets you join various promotions, and is easy to get approved for because you only need to fill out a form. When the cashier says that if you apply today, this purchase will get a discount, many people can’t resist. And the application form for a store credit card often looks very similar to a membership card application form, so it is easy to mistake it for a regular membership application. I’ve heard of quite a few people who thought it was just a membership card and applied without realizing it; by the time they received the card, it was too late to regret it.

Here is the easiest way to tell: if the form the cashier gives you asks for your SSN, do not continue.

Redemption Restrictions

Most credit card rewards can be redeemed as statement credit to directly offset your bill, but store credit card points can often only be used inside the store. That means, indirectly, you have to go back and spend at that merchant again, and your purchase may even end up being larger than the value of your points. In that case, you get played by the merchant again. Also, gift cards from most merchants can often be bought at a discount, so the value of your points is effectively discounted too.

For example, the Banana Republic co-branded card looks attractive with 5x points, but the points can only be used in its own store.

Their gift cards are often available at around 15% off, and Amazon gift cards are also frequently sold at an 20% discount.

Low Sign-Up Bonus

A first-purchase bonus like an extra 20% off sounds pretty tempting—that’s basically 20% off. But if you do the math, you’ll see that a normal credit card sign-up bonus is usually around $150, and you would need to spend over $750 just to offset $150. If you factor in the fact that 10%-off gift cards can be bought, then the real value of that 20% is even lower.

If you know anything about credit cards, you probably know there are many cards on the market with sign-up bonuses of $500+ . A store card’s sign-up bonus really is not much to look at.

Service Is Just Average

That is not to say all small banks are bad, but on average, the service level of the big banks is better than that of the banks partnered with ordinary store credit cards, such as Synchrony Bank. Service quality shows up in customer support, how easy it is to reach someone by phone, handling fraud, the online banking experience, app experience, and more. Also, with big banks, if you forget to pay and then pay in full within a month, customer service can usually waive the late fee. Small banks generally cannot do that.

It is said that if you owe money and do not pay, small banks will not proactively remind you; they will let your interest skyrocket and then sell the debt to collections, causing your credit score to drop sharply.

What Are the Plays?

After all those pitfalls, if you are careful and avoid them, there are still quite a few ways to use store cards.

Shopping Cart Trick

DOC previously had a dedicated article on this trick. The core idea is that some store credit cards will give you a pre-approval at checkout, so you can apply for the card without a hard pull. This may not be very useful for the average person, but it is quite good for people with weaker credit histories. It is similar to not being able to get approved for a credit card or a new credit line, and then someone just hands you approval for a card and gives you spending power for free. That said, many merchants can no longer use this trick. From the comments, it seems the Caesars Total Reward card may still work with this trick.

• DOC Shopping Cart Trick guide

For most people, this trick is not very useful, because even without a hard pull, the credit card will still end up on your credit report. A new account has a bigger and longer-lasting impact on your credit score than a hard pull does. Saving one hard pull just to get a useless card really is not worth much.

Maxing It Out

Shop-branded credit cards are generally issued by smaller banks, and their risk controls aren’t as strict as the big banks’. If you can find a good MS opportunity, you can really hammer it for a while. For example, the Rakuten (ebates) co-branded card before its redesign. That card offered an extra 3% cash back at giftcards.com (3x MR). And giftcards.com sold a lot of Visa gift cards, which made it possible to keep cycling them for MS. The really aggressive folks would buy up to their credit limit every time and pay it back immediately; by the end of a quarter, the results could be very impressive.

Another example is the Amazon store card. During shopping season, if you place orders for other people, you can also max out the 5% back. But with the Chase Amazon co-branded card, if you max it out a few times, you may get hit by risk controls and the card could be shut down.

Multiple cash-back multipliers

Some store co-branded cards send out special offers, and some of them are ridiculously good. For example, the Banana Republic card mentioned above often sends 10x cash-back offers, with categories including supermarkets (you know what that means), and so on. Sometimes there isn’t even a cap on the offer. Picking up some Visa gift cards and turning them into clothes is pretty nice.

Checkout application

Similar to the dummy booking trick for hotel credit cards (at the final step of booking, the hotel recommends a credit card offer, and that offer is usually a bit better than the public one, with a few more statement credits and so on), store credit cards have the same trait. So if you’re planning to apply, it may be worth pretending to check out and seeing whether there’s a better offer than the one you find by searching directly.

Premium membership

Some co-branded cards give better rewards if you have premium membership. For example, the Amazon store card gives a $60 bonus if you have Prime, but only $10 if you don’t. Of course, you’ll want to upgrade first and then apply.

Paying at the counter

This is more suitable for older people without online banking. Store credit cards generally let you pay the bill at the store’s customer service counter. For example, Kohl’s allows this: you can use a check or cash at the counter to pay the credit card bill. I vaguely remember seeing one store where you could use a VGC/debit card to pay the bill, which also counts as a cash-out technique.

Which store cards are worth considering

Below are a few store credit cards I personally think have some distinctive features. Feel free to use them as references.

Amazon Store Card

• Welcome bonus: $60 Amazon gift card (with Prime) or $10 (without Prime)
• Cash back: 5% at Amazon (Prime membership required), 0% without Prime, and can only be used on Amazon.com
• Cash-back redemption: Can be redeemed directly as statement credit
• No annual fee
• Synchrony Amazon Store Card application link

Beyond the familiar 5% cash back, one big perk of this card is that it offers extra cash back on special products during the holidays. For example, Amazon devices may get 15% back, and some electronics may get 10% back. If you have a lot of shopping needs on Amazon, this is worth considering. Also, buying Amazon gift cards with this card still earns 5% back, so you can buy gift cards on account A and have account B use them.

Best Buy Store Card

• Welcome bonus: 10% cash back on the first day after approval, or choose flexible financing
• Cash back: 5%/6% rewards on Best Buy purchases
• Cash-back redemption: Can only be used for Best Buy purchases
• No annual fee
• Best Buy Store Card application link

The rewards are paid as Best Buy Best Rewards, which are applied directly as a discount and are tax-free. If you have significant shopping needs at Best Buy, this is worth considering. After all, 6% cash back + tax-free + Best Buy gift card prices that have always held up well is a pretty solid combination.

Banana Republic Card

• Welcome bonus: 20% off your first online order after approval
• Cash back: 5x merchant rewards
• Cash-back redemption: Can only be used at Banana Republic, Gap, and similar stores
• No annual fee
• Banana Republic application link

As mentioned above, didn’t it once send 10x offers for supermarkets? Very strong.

Citi Costco

The cash-back categories are pretty good, after all Costco spending is still a necessity for some people.

Kohl's Charge Card

• Welcome bonus: 35% off on the first purchase after approval
• Cash back: 5% at Kohl’s
• Cash-back redemption: Can only be used at Kohl’s
• No annual fee
• Kohl's Charge application link

The whole point of this card is that the associated Kohl’s account receives super discounts like 40% off during various promotions, and when combined with Kohl’s Cash rebates, you can end up buying things at all kinds of unbelievable prices.