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Americans’ Preference for Store Credit Cards Will Cost Them This Holiday Season

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How Store Credit Cards Will Cost Americans This Holiday Season

Americans will use their credit cards to spend billions on gifts, food, decor, entertainment and more this holiday season. But according to an analysis by NerdWallet, consumers are more interested in shopping with store credit cards than with traditional cards, which means they’ll pay higher interest rates and miss out on valuable rewards.

What’s more, by opting for store cards over rewards or cash-back credit cards, shoppers could hurt their credit scores, too.

Our study of projected holiday trends examined consumer interest in store-specific cards — which we found by analyzing Google search estimates for December 2015. We compared online searches for Wal-Mart, Target and Amazon credit cards with general rewards and cash-back cards and cards from the top six credit card issuers.

We also examined the data to identify the states where consumers are projected to search for store cards versus rewards cards.

For complete details about our methodology, see the section at the end of this report.

Key findings

Store cards top credit card queries. Americans in 36 states are expected to search more for Wal-Mart, Target and Amazon store credit cards than rewards and cash-back cards combined during the holiday season.

Wal-Mart’s card is popular in the South. Consumers in nine states in the South are likely to search for the Wal-Mart store credit card more often than cash-back and rewards cards. Outside the South, the Wal-Mart store card is the dominant search in New Mexico.

A previous study by NerdWallet on average credit scores by U.S. metro area could help explain this projected search trend. Residents of Mississippi, Georgia and Louisiana have some of the lowest credit scores in the nation, and since store cards are often easier to qualify for than rewards cards, the searches could indicate that consumers are looking for a credit card that aligns with their FICO scores.

Wal-Mart beats Amazon. Projected searches show that interest in the Wal-Mart store card is twice that of the Amazon card. Despite the popularity of online shopping, the bricks-and-mortar heavyweight wins in the expected search-query battle with the largest online retailer in the U.S.

» MORE: How is credit card interest calculated?

Store credit cards and consumers

Store credit cards typically aren’t the best option for shoppers. These cards tend to have lower-value rewards, smaller credit limits and higher interest rates, which means they aren’t as consumer friendly as general rewards cards with the Visa or MasterCard logo.

And the lower spending limits on store cards could hurt shoppers’ credit scores, since even a small balance can mean high credit utilization — the amount owed compared with the card’s credit line.

But for consumers just starting out with credit or for those trying to rebuild a score, store credit cards can be easier to qualify for than regular rewards cards.

Differences in store credit cards

Not all store credit cards are created equal. There are two major kinds, closed-loop credit cards and open-loop cards, which operate via a system connecting two entities — the card’s bank and the store’s bank. Open-loop cards are connected by a third-party payment network, such as Visa or MasterCard, and can be used anywhere the payment network is accepted.

Closed-loop credit cards work only in the stores of a single brand or parent company. These cards are backed by agreements between the store’s bank and the card’s bank that enable transactions at a lower cost to the retailer. Sometimes retailers pass these savings on to consumers as rewards for use in the store. Other times, the savings help cover the increased risk retailers take on by issuing cards to consumers with average credit.

Wal-Mart, like many retailers, has both open-loop and closed-loop credit cards. The open-loop card has the MasterCard logo, and it can be used everywhere MasterCard is accepted. The closed-loop card can be used only at Wal-Mart.

An application for a Wal-Mart credit card automatically puts a shopper in line for a MasterCard. But if an applicant’s credit is “average” instead of “good” or “excellent,” then the shopper will likely be approved for the store card instead.

Drawbacks of store credit cards

Store cards have limits, especially closed-loop cards that can be used only at one merchant. Any rewards, which are often points to be used at that merchant’s store or low cash-back rates, can pale in comparison to the bigger and more flexible rewards of the most popular cash-back cards.

If projected search traffic for store credit cards is any indication of the cards U.S. consumers are applying for, our data show that they could be missing out on higher value rewards, bigger credit limits and lower interest rates during this shopping season.

When to choose a store card

There are situations in which applying for a store card makes sense, such as for consumers at the beginning of their credit history or those who are rebuilding their credit score.

When using a store card with a lower credit limit, shoppers should monitor credit utilization, which is the percentage of credit used at any time. Although there is no perfect number, in most cases, credit utilization shouldn’t be more than 30% of the limit, even in the middle of the billing cycle. For a $1,000 credit limit, that means not carrying a balance over $300.

Consumers should avoid carrying a balance from month to month on a store card. The cards’ higher average interest rates could mean significantly more in interest over time if the balance isn’t paid in full each month.

For example, a shopper who uses a store card to charge $805 — the likely average spending per consumer for the 2015 holiday season, according to the National Retail Federation — and who has a minimum monthly payment of $25 would probably pay more in the long run than shoppers who use a traditional card. For instance, the Wal-Mart store card’s 22.9% APR would cost almost $140 more in interest and take five months longer to pay off than a traditional card with an APR of 18%.

Consumers with “poor” or “fair” credit may want to look at secured credit cards or rewards cards for those with “average” credit instead of store cards.

Data tables

The table below shows the projected interest score and searches for store credit cards, rewards and cash-back cards and bank credit cards.

StateStore cards interest scoreAll store credit card searches per 100 credit card searchesRewards and cash-back credit cards search interest scoreRewards and cash-back credit card searches per 100 credit card searchesBank (non-store) credit cards search interest scoreBank (non-store) credit card searches per 100 credit card searches
Alabama64.6722.3862.1113.9336.4829.68
Alaska0.0010.8969.5311.3519.5425.35
Arizona67.2222.8436.6618.2947.4532.48
Arkansas83.9625.816.8915.341.9720.87
California53.6720.4331.4318.8045.6132.01
Colorado49.8419.7561.1118.2571.5738.63
Connecticut43.3918.6068.3618.6882.5541.43
Delaware21.4614.7051.8316.9652.2533.70
Florida63.1022.1071.0215.1478.7634.15
Georgia48.8419.5743.8714.2254.0026.68
Hawaii4.9711.7736.0516.1024.7228.45
Idaho56.7120.970.0022.3131.6528.21
Illinois55.9620.8360.6216.8530.7335.56
Indiana59.1121.3934.7916.2059.5228.34
Iowa52.8820.2937.5516.9431.2330.28
Kansas30.5616.3263.8714.3638.8530.94
Kentucky72.9123.8541.3213.4141.4524.68
Louisiana54.4920.5746.8613.4216.9125.75
Maine73.7624.000.9421.4521.0727.41
Maryland50.9619.9480.5217.9027.6142.74
Massachusetts41.3818.2459.7120.6287.6843.24
Michigan40.8918.1660.1016.1589.6533.97
Minnesota52.3820.2054.2918.0653.2936.51
Mississippi59.2721.4243.7213.7363.2425.74
Missouri45.0418.8947.2615.3821.0529.58
Montana48.4919.5148.4819.4736.1137.78
Nebraska16.2013.7752.2210.2268.2420.37
Nevada54.9420.6533.3317.110.0029.59
New Hampshire72.1623.7137.9622.2736.1539.95
New Jersey25.9615.50100.0016.3876.7543.54
New Mexico100.0028.6655.2618.7790.8338.20
New York34.8917.0919.7929.7869.8745.88
North Carolina71.8023.6539.6917.29100.0031.43
North Dakota38.0017.6432.5415.0243.3625.82
Ohio57.8021.1639.2417.7421.3532.15
Oklahoma80.0025.1143.6415.4446.1728.91
Oregon38.3317.707.2221.6933.4929.61
Pennsylvania56.7620.9867.9216.6336.2136.78
Rhode Island47.9919.4274.8117.3164.3439.94
South Carolina63.7222.2129.5316.5176.7127.68
South Dakota43.5718.6320.4916.1728.6525.07
Tennessee70.0723.3436.1414.8618.4226.28
Texas80.4925.1974.8815.6523.1836.14
Utah22.2514.847.2322.8061.7931.14
Vermont56.2420.8829.0825.3642.2042.35
Virginia52.2120.1743.8619.7786.1537.09
Washington33.4516.8317.6117.6065.5426.58
West Virginia89.9326.8737.8214.7424.3626.41
Wisconsin73.6623.9826.1124.2123.6839.42
Wyoming42.2318.3935.0315.5774.6827.29

The table below shows the projected interest score and searches for store credit cards from Amazon, Target and Wal-Mart.

StateAmazon credit card search interest scoreAmazon credit card searches per 100 credit card searchesTarget credit card search interest scoreTarget credit card search interest score (adjusted for the number of stores in the state)Target credit card searches per 100 credit card searchesWal-Mart credit card search interest scoreWal-Mart credit card search interest score (adjusted for the number of stores in the state)Wal-Mart credit card searches per 100 credit card searches
Alabama7.964.5736.155.741.1981.574.2916.61
Alaska27.106.069.870.210.770.000.004.06
Arizona44.067.3799.087.892.2159.736.3713.25
Arkansas19.945.5015.643.180.86100.001.6819.45
California39.477.01100.00100.002.2346.28100.0011.18
Colorado40.237.0738.233.251.2347.994.3711.45
Connecticut44.987.4438.113.791.2238.165.889.94
Delaware0.003.9628.911.161.0836.431.219.67
Florida20.695.5658.9730.971.5670.9537.2814.98
Georgia14.895.1134.3913.521.1659.9913.8313.29
Hawaii21.225.6037.001.831.215.841.354.96
Idaho28.106.1346.651.321.3661.151.1113.47
Illinois27.346.0791.7720.492.0955.9019.7912.66
Indiana23.655.7946.486.401.3666.176.0214.25
Iowa38.716.9551.691.981.4450.841.8311.89
Kansas10.104.7434.431.781.1641.271.1210.41
Kentucky7.804.5637.396.181.2191.044.4918.07
Louisiana12.764.9543.926.731.3266.583.1014.31
Maine71.059.4624.190.941.0061.601.0013.54
Maryland49.927.8258.366.201.5542.2910.0310.57
Massachusetts51.737.9649.448.591.4131.2414.728.87
Michigan24.475.8559.3812.671.5743.3514.4710.73
Minnesota44.877.4364.502.051.6545.825.0211.11
Mississippi13.505.0016.144.730.8774.672.1115.55
Missouri17.105.2829.144.111.0855.034.0612.53
Montana52.568.0324.670.001.0141.650.3910.47
Nebraska12.094.8926.671.201.0424.500.997.83
Nevada26.606.0262.344.411.6258.194.3813.02
New Hampshire65.439.0220.180.410.9363.000.9313.76
New Jersey22.395.6940.6113.711.2629.1220.898.55
New Mexico50.607.8780.641.911.9196.251.3418.87
New York39.877.0458.4752.721.5528.7763.378.49
North Carolina28.296.1548.9513.141.4078.2312.2716.10
North Dakota44.717.4238.070.341.2232.070.189.00
Ohio26.606.0255.7713.331.5162.1915.4813.63
Oklahoma34.356.6262.024.801.6183.282.0516.88
Oregon35.146.6830.813.101.1138.034.509.92
Pennsylvania31.196.3755.0317.111.5058.7621.7013.11
Rhode Island54.578.1852.971.741.4737.081.749.77
South Carolina21.095.5921.184.590.9575.464.9415.67
South Dakota38.286.9262.120.411.6139.200.2910.10
Tennessee18.835.4230.597.261.1082.938.6716.82
Texas29.796.2679.7645.291.9084.2737.0517.03
Utah4.714.3220.721.400.9435.831.589.58
Vermont100.0011.700.000.430.6129.330.558.58
Virginia34.716.6449.687.621.4152.309.4112.11
Washington43.227.3038.637.041.2327.519.358.30
West Virginia39.937.0529.721.881.0995.351.5718.73
Wisconsin60.988.6871.632.941.7761.554.2713.53
Wyoming15.755.189.160.000.7554.580.0812.46

 

Methodology

We assessed Americans’ interest through estimated Google search volume in store cards from Target, Amazon and Wal-Mart and rewards and cash-back credit cards. The search volume data are projections for December 2015.

For store cards, we used the search terms “Target credit card,” “Amazon credit card” and “Walmart credit card.”

For rewards and cash-back cards, we used the search terms “best cash back card,” “best cash back cards,” “best rewards credit cards,” “best rewards credit card,” “cash back credit cards,” “cash back credit card,” “rewards credit cards” and “rewards credit card.”

For general credit card searches, we used “credit card,” “credit cards” and “best credit cards.”

For bank (non-store) credit card searches, we used “American Express credit card,” “Bank of America credit card,” “Capital One credit card,” “Chase credit card,” “Citi credit card” and “Discover credit card.”

To calculate an “interest score” for each kind of card in every state, we divided the number of estimated searches for store card terms by the estimated number of searches for general credit cards. The interest score was normalized to create state scores from 0 to 100.

This interest score was also adjusted for the number of stores in every state for each kind of card by dividing store card search terms by the number of stores per capita. The score was also normalized from 0 to 100.

NerdWallet staff writer Erin El Issa contributed to this article.


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