Co-Branded Credit Cards and You

We've all had it happen - you're checking out of a popular store with a new purchase and the cashier stops you. "Would you like to apply for our store credit card?" she asks. After tempting you with offers of one time price breaks, continual discounts, and great perks, you apply and are approved on the spot. But there's a problem - as you leave the store, you wonder if you did the right thing.

Store credit cards are best known as co-branded credit cards. Any card that partners with a specific store or chain of stores is a co-branded credit card. These cards work like normal credit cards but offer specific perks, tips, tricks, and more to appeal to consumers. The approval process and management is usually handled by the credit card company, and the store takes a hands off approach. Sounds like a quick deal, right?

There are a few negatives you should consider when applying for a co-branded credit card. First, each time you apply for a new credit card, a hard credit check is run on your credit. That credit check can reduce your credit rating and, consequently, your credit score. In that case, getting a small discount may not be worth the hit to your credit. It's important that you calculate the true value of the discount your receive.

In addition to the impact on your credit score, co-branded credit cards also have less exemplary service and features than normal credit cards. Many contain obscure restrictions and fees. Some require you spend money. Others have more difficult administrative procedures than your normal card. And almost all of these co-branded cards have higher interest rates than other commercial credit cards you might be able to obtain. These concerns don't have to stop you from getting a co-branded credit card, but they should give you pause.

That said, co-branded credit cards have advantages as well. If you already have applied for and received a credit card, keep it open. The additional available credit- even if you don't use it- could help your credit rating and credit score. It's also important to note that on big purchases, co-branded credit discounts can make a substantial difference. $500 in savings is probably worth a temporary hit on your credit.

Next time you're in line at the store, you can answer that cashier's question with confidence. You know the pros and cons about co-branded credit cards - and that will serve you well before, after, and during your time in the checkout line.