Editorial Policy

Why isn't my store card a Visa or MasterCard?

Eva Norlyk Smith Ph.D.

October 28, 2013

QHi Eva,

I recently got talked into a store card, and when I got it in the mail, I noticed that there isn't a Visa/MasterCard logo on it. Should I be worried? Will my card be accepted everywhere? — Marissa

ADear Marissa,

It's not uncommon for large retail chains to issue two versions of a credit card: one that is co-branded with Visa, MasterCard or American Express, and one that is not co-branded.

Store credit cards co-branded with Visa or MasterCard can be used wherever Visa and MasterCard are accepted, but as you rightly suspect, this is not the case for non–co-branded cards. Your card will have limitations you need to be aware of. You can use the card only for purchases with the retailer issuing the card. In addition, the credit limit on these types of store cards is often quite small.Ask Eva

So why did you end up with the less-flexible card? When you apply for a store card, the store's credit card issuer will check your credit. If it's good enough, you'll be granted its best card — usually the one co-branded with a major card network. If not, you'll end up with the card that can be used only in-store.

There's nothing inherently bad about this, but you did end up with credit card that gives you fewer benefits than you might have preferred. It's not uncommon for people to “get talked into a store card” as you put it. Offers of 10 percent off your purchase or 0 percent financing are tempting. Then, the card arrives in the mail, and it's not exactly the co-branded card you thought you were getting.

So, now that you've got the card, what do you do? As with any credit card, whether your card will serve you well really depends on how you use it. There are many pitfalls to avoid — especially the temptation to spend more. Retailers issue store credit cards so freely because they know that customers who have access to easy store credit tend to spend more. This is a double whammy because most store cards come with higher-than-average interest rates.

Especially tricky are store cards that lure you in with offers of 0 percent financing for large purchases. These are cards typically issued by electronics or home improvement stores, such as Best Buy, the Home Depot and Lowe's. It's not unusual to get offered 0 percent financing for up to 18 to 24 months with these types of cards.

But watch out: If you don't pay the balance off in full by the end of the promotional period, you will be charged interest on the full purchase retroactively to the date of purchase. Because interest rates on these cards can reach 25 percent or higher, you can easily end up paying a hefty premium on that gadget or home improvement purchase.

More significantly, store cards can affect your credit utilization ratio, another important component of FICO scores (the most common type of credit scores used by lenders). Because the credit limit on store cards typically is pretty low, it's easy to run up balances that are high in relation to the credit limit, and this can hurt your credit utilization. For example, for a store card with a $500 limit, even a relatively modest balance of $250, represents a credit utilization of  50 percent. This is a problem, because to maximize your FICO scores, credit utilization within each card and across all your credit cards should be no more than 30 percent.

So should you keep the card? If you got turned down for the co-branded card because of your credit, this less-than-ideal store card might be just the thing you need to polish your credit score so that you qualify for something better in the future. Simply follow these two rules of thumb: Keep balances on the card below 30 percent (if needed, make an extra payment each month), and always pay the card off in full at the end of the month. Keep up-to-date with any other loans and cards you have as well. After a year, check your credit scores (here's how). If your scores are above 700, it's probably time to start shopping for a card you can use anywhere.

Good luck!

Got a question for Eva? Send her an email.