What is a private credit card?

Definition of a Store Credit Card

A store credit card is a type of credit card that is limited to a specific retail store or brand. Also known as retail cards, these are credit cards you use at a particular store. Some store credit cards can be used to earn rewards and discounts. If you make a purchase with a promotional deferred interest, make sure to pay off the balance in full before the promotional period ends.

How Store Credit Cards Work

Merchants or brands partner with banks to offer credit cards that encourage customers to shop at their store. The bank approves new cardholders and finances transactions while handling payments from the holders. In turn, the merchant markets the product and requests new applications in-store and online.

The bank and the merchant share the profits from store credit card transactions. Merchants may also gain additional benefits by avoiding processing fees on transactions that rely on the card provider’s payment system. This makes store credit cards more profitable for merchants since processing costs can exceed 4% per transaction with regular credit cards.

Consumer Purchases

Like other types of credit cards, holders of store credit cards can make purchases based on their available credit limits and must make periodic payments to avoid incurring late fees. Unless a promotional rate is in effect, interest accrues on any balance carried after the grace period.

Loyalty Rewards

Store credit cards often offer rewards and discounts or other incentives for cardholders. These rewards are usually only usable at that specific store or brand, making them less flexible than major credit cards or even co-branded credit cards.

Promotional Financing

Store credit cards may also offer promotional financing that allows the cardholder to pay off the balance at a low or no-interest rate, or with deferred interest. Promotional periods can last up to 60 months. During these periods, the merchant pays the card issuer to offset the lost interest. The longer the promotional period, the more costly the compensation the merchant must pay to their banking partner to offset the lost interest.

Taking advantage of a special financing offer can help you pay off a large purchase without interest. However, it’s essential to understand whether the promotional interest is truly a 0% fixed annual percentage rate or deferred interest. In the latter case, you will need to pay off the entire balance before the promotional period ends; otherwise, the full amount of interest will be added to your outstanding balance.

Do I Need a Store Credit Card?

Since they are not supported by major credit card processing networks, you can usually only use them at the affiliated stores or brands. For example, you can use an Old Navy card for your purchases at Gap, Banana Republic, and Athleta. This is the primary drawback of using a store credit card – it does not provide the flexibility of a major credit card.

Store credit cards tend to have higher interest rates than other credit cards, making it more expensive to carry a credit card balance. Some merchants may require you to forgo earning rewards on your purchases if you choose promotional financing.

It may be easier for consumers with new or damaged credit to get approved for a store credit card, so this can be a good option for building credit. After establishing a positive payment history with a store credit card, it may be easier to get approved for a major credit card.

Advantages

Disadvantages of Private Label Credit Cards

Advantages

You can earn rewards: Some private label credit cards offer rewards that you earn on purchases. In many cases, you can use those rewards for discounts on future purchases.

Easier to qualify than other types of cards: Merchants tend to approve applications from a wider range of applicants, including those with poor credit.

Disadvantages

High interest: Private label credit cards have a higher interest rate than non-private credit cards.

You can’t use them everywhere: Private label credit cards restrict your use of the card in-store and when applicable at other brands under the company.

Deferred interest: While deferred interest can help you save money if you pay off your purchase by the end of the promotional period, it can cost you hundreds of dollars in interest (depending on the size of the original purchase) if you can’t pay the balance by the due date.

Alternatives to Private Label Credit Cards

Joint credit cards offer many of the same benefits as private label credit cards, such as the ability to earn rewards and brand-specific discounts, but you can use them anywhere (not just in-store).

General or “flexible” credit cards offer rewards that are not tied to a specific brand, which you can use anywhere that accepts the card network, still allowing you to earn rewards on your purchases. Rewards earned on general credit cards are not limited to a specific retailer or brand.

Source: https://www.thebalancemoney.com/what-is-a-private-label-credit-card-5188474