Private label credit cards are a particular kind of credit card that’s typically only good at one specific store. Some stores or other merchants offer private label credit cards to give better terms to certain customers than they might otherwise be able to offer. Many merchants also provide these cards as an incentive for customers to spend more, since they can potentially defer payment and/or earn loyalty rewards.
These perks are among the reasons why private label credit cards are popular. But before you start thinking about how to get a private label credit card, it’s important to consider their pros and cons.
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What Is a Private Label Credit Card?
Also called a store credit card or a closed loop credit card, private label credit cards are credit cards that can only be used at one particular store or merchant.
Generally, a merchant’s private label credit card is partnered with and issued by a third-party financial institution, such as a bank. These institutions act as private label credit card issuers, and they’re responsible for funding the credit line and collecting all payments.
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How Do Private Label Credit Cards Work?
If you understand how credit cards work, you’ll know they usually can be used anywhere the processor (often Visa or Mastercard) is accepted. In contrast, private label cards are intended for use only at the store or merchant where they are issued.
In other respects, private label cards work in much the same way as traditional credit cards. These cards offer a revolving line of credit that cardholders can borrow against, up to their predetermined credit limit. It’s necessary to make at least a minimum credit card payment to avoid a late payment fee. Balances that carry over from month to month will accrue interest.
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Getting a Private Label Credit Card
In most cases, the easiest way to get a private label credit card is to apply at the store that’s issuing or sponsoring the private label credit card. Many stores offer incentives for applying for their private label card while you’re shopping in the store. You also may be able to sign up for a private label card on the store’s website.
But even if you can get one, should you get a private label credit card? Choosing a credit card depends on your specific financial situation. However, if you have sufficient income and strong credit, you may be able to get a traditional credit card that may offer rewards and more flexibility than a private label card that’s only good at one store may provide.
How to Set up a Private Label Credit Card
Because banks or other financial services companies serve as the credit card issuers for most private label credit cards, you’ll likely be familiar with the setup process if you’ve ever had any other credit card.
Once you’ve applied for and been approved for a private label credit card — assuming you met the credit card requirements — you’ll typically go through the process of setting up your card. You’ll want to make sure to log in to your online account, review your statements, and set up payments.
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Benefits of Private Label Credit Cards
Wondering why are private label credit cards popular? Here are some of the upsides of these types of credit cards:
• Easier to qualify for: Private label credit cards are often thought of as being easier to get approved for than general purpose credit cards. So if you don’t have an excellent credit history, you may consider a private label credit card as a way to help build your credit.
• Earn rewards and other benefits: Another benefit of private label credit cards is that stores often use them to build loyalty with their best customers. This might include offering rewards, loyalty points, or even nixing the credit card annual fee some cards have.
Drawbacks of Private Label Credit Cards
Even if the pros of private label credit cards may seem enticing, it’s also important to account for the downsides. These include:
• Lack of flexibility in use: The biggest drawback of a private label credit card is that it typically can only be used at one specific store or merchant. The lack of flexibility means that it is difficult for a private label credit card to be your only or main credit card.
• Potentially higher APRs: Another potential drawback is that many private label cards have annual percentage rates, or APRs. Make sure you read the terms and conditions before signing up for a private label credit card to ensure you know the consequences of carrying a balance. Otherwise, you could end paying exorbitant interest — which is how credit card companies make money.
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Private Label vs General Purpose Credit Cards
As you can see, slightly different credit card rules apply to private label credit cards. Here are the major differences to keep in mind when comparing a private label card to a general purpose credit card:
|Private Label Credit Cards||General Purpose Credit Cards|
|Can usually only be used at one store or merchant||Can be used anywhere the issuer (e.g. Visa, Mastercard, etc.) is accepted|
|Only offers store-specific rewards or perks||May offer cash back or travel rewards on every purchase|
|Generally are easier to get approved for than traditional credit cards||Often more difficult to get approved for than private label cards|
Private Label vs Co-Branded Credit Cards
Some merchants offer a co-branded credit card that offers specific perks for their particular store but is issued by a major credit card processor (i.e., Visa or Mastercard). This means that you can also use the co-branded credit card at other merchants. As one example, Old Navy and Barclays offer the Navyist Rewards Mastercard, which offers Old Navy perks but can also be used anywhere that Mastercard is accepted.
Here’s a breakdown of the key differences to keep in mind to distinguish between private label credit cards and co-branded credit cards:
|Private Label Credit Cards||Co-Branded Credit Cards|
|Can usually only be used at one store or merchant||Can be used anywhere the issuer (e.g. Visa, Mastercard) is accepted|
|Only offers store-specific rewards or perks||Also offers store-specific rewards or perks but can also offer rewards on purchases at other merchants|
|Generally are easier to be approved for than traditional credit cards||Often more difficult to be approved for than private label cards|
Alternatives to Private Label Credit Cards
Two alternatives to private label credit cards are general purpose credit cards and co-branded credit cards. Here’s what you need to know about each of those other options as you’re deciding which type of card is right for you:
• General purpose credit cards are what you probably think of when you think of a credit card. These cards can be used anywhere that processing network, such as Visa or Mastercard, is accepted.
• Co-branded credit cards are cards that share branding between a bank or credit card issuer and another merchant or company. Examples include airline or hotel credit cards or the credit cards of some retail stores. With a co-branded credit card, you can also use the card anywhere the processing network is accepted, and you’ll often earn brand-specific perks on every purchase.
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A private label credit card is a type of credit card that can typically only be used at one particular store or merchant. Many merchants use private label cards as a way to incentivize and reward their most loyal shoppers. It can also motivate shoppers to spend more, since they have the convenience of a credit card and can defer payments to a later date.
While it may sometimes be easier to get approved for private label credit cards, if your credit and income support it, you may be better off with a cash-back rewards credit card like the SoFi Credit Card.
The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1
How can I get a private label credit card?
The easiest way to get a private label credit card is to apply on the website or in the store of the merchant that offers the card. If you meet the credit card requirements, you will be approved for the card. Then you can start using it while shopping at this particular merchant.
How do private label credit cards make money?
Private label credit cards make money in much the same way that any other credit card companies make money. They make money from the fees associated with the card (late fees, possible annual fees, etc) and interest paid by cardholders who carry a balance. Additionally, they may rake in money from “swipe fees” paid by the merchant each time the card is used.
Who do you make payments to when using a private label credit card?
While a private label credit card often has the logo of a particular merchant or store, the day-to-day processing is handled by a bank or other financial services company. You’ll make your payments directly to the processing company, usually not to the store itself. One of the credit card rules for successfully managing your credit is to pay your bill in full, each and every month, so make sure you understand who and when you need to pay.
Photo credit: iStock/gazanfer
When you elect to redeem rewards points as cash deposited into your SoFi Checking and Savings account, as a statement credit to a SoFi Credit Card account, as fractional shares into your SoFi Invest account, or as a payment toward your SoFi Personal Loan or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.
1See Rewards Details at SoFi.com/card/rewards.
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The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Members earn 2 rewards points for every dollar spent on eligible purchases. If you elect to redeem points for cash deposited into your SoFi Checking or Savings account, SoFi Money® account or fractional shares in your SoFi Active Invest account, or as a payment to your SoFi Personal, Private Student, or Student Loan Refinance, your points will redeem at a rate of 1 cent per every point. If you elect to redeem points as a statement credit to your SoFi Credit Card account, your points will redeem at a rate of 0.5 cents per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.