When you're considering a big furniture purchase, a store credit card doesn't seem like a bad idea -- especially if you don't need to pay any interest or make any payments for a year or two.
But are the deals as enticing as they seem?
Store credit cards 101
Typically, experts recommend against store credit cards for several reasons. Here's why:
Interest rates are high: In 2021, credit cards from the nation's largest retailers had an average APR of more than 23%, compared to roughly 19% for non-store cards. If you can't pay off your balance right away, that's a painful price to pay.
Credit limits are low: While this may prevent you from purchasing more than you can comfortably afford, the fact remains that you'll probably have (or eventually earn) a much higher credit limit on a non-store card. And if you charge a few thousand dollars worth of furniture on a card that only has a limit of a few thousand dollars, this could have a negative effect on your credit utilization ratio (how much of your available credit line you've used up). This has a big impact on your credit score.
Card benefits are thin: Important fringe benefits like buyer protection, extended warranties, and grace periods are not common with store credit cards. That's right -- with no grace period, you could be charged interest on your purchase immediately with a store credit card.
Credit inquiries can lower your credit score: As with all credit cards, the issuer will check your credit report when you apply for a store card. This hard check can cause a minor dip in your credit score. For some, like those who are in the bubble of qualifying for a mortgage, this can cause a headache, especially if they could have made the purchase another way.
Additional temptation: Stores often send cardholders discounts or promotions as a way to drum up additional business, but if you find yourself charging things you don't actually need because they're a "good deal," well… that's really not a good deal at all.
What about using store credit cards for furniture, appliances, or other big purchases?
Our general warnings still hold true, but let's say you have your eye on a big purchase such as matching stainless-steel appliances. Or maybe you need a bigger sofa to fill that massive new living room. The retailer is offering no interest for a year or two if you use their store credit card. Maybe you won't even need to make any payments during that period. It seems like a no-brainer, right?
Not exactly. One of the reasons the store credit card tempts you is probably a low- or no-interest offer for a long period -- say one or two years after your purchase. What you may not know is that if you don't pay for the purchase in full during that period of time, this interest isn't actually going anywhere.
You will have to pay every dime of that interest retroactively once the promotional period expires.
The same often goes if you miss one dime of your minimum payment (if a payment is required) during that promotional period; you could be hit with retroactive interest immediately.
Alternatives to store credit cards
There are a few better ways to make that big purchase that don't involve store credit cards: Pay cash, buy used, or use a regular credit card.
Alternative No. 1: Pay cash
We'd be remiss if we didn't mention this obvious method. Save up for your purchase, and pay for it in full without using credit. You won't be on the hook for any interest, and you'll have far more latitude to negotiate. After all, the retailer often would rather take a small hit on the purchase price in order to take your cash right away and avoid paying credit card fees.
It's also worth remembering that experts recommend against financing anything that will depreciate in value, and furniture or appliances are a perfect example. (You may be thinking about how people finance cars all the time, which depreciate the moment they're driven off the lot. This is true, and in an ideal world, you would pay cash for your car, too. But also consider how much lower APRs are for car loans. Right now, the national average for car loans is only 3.94% if you have good credit.)
Alternative No. 2: Buy used
If you can get past the desire for shiny and new things, buying used furniture can save you thousands of dollars. Ideally, you'll be able to snag it from a trusted source to blunt fears over cleanliness. If not, Facebook resale groups and Craigslist can offer a wealth of options.
Even if you're wary of buying upholstered pieces used, you can find great bargains on tables, shelves, dressers, and appliances. (In general, you do probably want to steer clear of used mattresses for obvious health concerns, including bedbugs.)
To buy used furniture without getting burned, keep a couple of things in mind:
- First, inspect it thoroughly before forking over your money: Stains, rips, missing parts, or funky smells are all obvious reasons to pass.
- Second, make sure you don't buy anything that's been recalled, such as a crib with drop-down sides.
- Third, remember hidden costs. If you need to rent a truck to haul the furniture or invest money in paint or new fabric, make sure you factor in these costs and compare the total to what you might spend on a new item.
Alternative No. 3: Use a regular credit card
If you can't afford to pay cash and don't want to buy used, a regular credit card is probably a better bet than a store credit card.
Why? First, you typically won't have to worry about retroactive interest when using a regular credit card (though you should always read the fine print to double-check). Second, unless your credit is very poor, you're probably looking at a much more reasonable interest rate -- the average APR is 16.17% but could be considerably lower if you have good credit. Finally, remember that regular credit cards often offer fringe benefits such as extended warranties, purchase protection, trip insurance, and even identity-theft resolution.
If you go this route, make sure to consider a couple of strategies:
Get a credit card with a 0% APR introductory rate
If you have good credit, you may be able to land a credit card with a 0% introductory APR. This way, you get the interest-free period that you would have gotten with the store credit card. Still, you won't be facing a scary retroactive-interest bill if you haven't paid the entire balance once the promotional period expires (though we still recommend you pay off the balance entirely within the introductory period).
Every offer is different, but it's most common for this introductory period to last from 12 to 15 months.
Use a credit card with hefty rewards
We recommend going the rewards card route only if you can pay off your balance quickly since APRs tend to be a bit higher on these cards. But it's worth mentioning since there are many fantastic rewards cards out there.
Also: The best Marriott credit cards: Enjoy extra travel perks
A big furniture or appliance purchase can trigger a nice cashback or travel miles bonus, and the average grace period of 25 days gives you an extra few weeks to pay off the entire purchase before you owe any interest on it.
Is it ever ok to use store credit cards?
There is one instance where it can make sense to make a big purchase on a store credit card: when the retailer is offering a hefty one-time discount just for signing up for their card.
Say you made a $4,000 furniture purchase, and the store was offering a 10% discount on your first purchase when you sign up for their credit card. You'd save a whopping $400. The trick is to be disciplined: Pay off the rest of the balance pronto -- or at least within the promotional period if there's a no-interest offer -- and then cut up the card when you're done.
Beyond that situation, if you're absolutely set on your big purchase, don't have the cash saved up to avoid using credit, and aren't able to qualify for a better credit card, store financing may be your last resort.
Using a store credit card won't ruin you if you abide by one rule: Pay off the balance immediately, or at least before the promotional interest rate expires.
A store card can also make sense if you're very financially disciplined and shop at the store very, very frequently.
If you can't qualify for other cards, there's also one more important way a store credit card can benefit you: It can help you build your credit. Store credit cards are easier to qualify for -- often because the retailer can repossess your purchases as collateral if you fall behind on payments.
But to raise your score, you have to use the card responsibly: You should only use a fraction of the available credit limit, and you should reliably pay off the balance every billing period before you're hit with interest.
[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]