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Closed-Loop vs. Open-Loop Store Credit Cards

Store cards are a popular option for those who want a new credit card. These store credit cards – or retail cards – provide deep discounts when shopping with your favorite brands online or in-store. Did you know that store cards come in two different varieties: open-loop and closed-loop? What exactly is the difference, and which is right for you?

What Is a “Closed-loop” Credit Card?

When people think about a store credit card, they are probably thinking about a “closed-loop” card. A closed-loop card is a type of credit card that you can use to make purchases at one retailer only. Another term for a closed-loop credit card is a single purpose credit card.

The easiest way to determine if your store card is closed-loop? Just take a look at it. Single purpose cards will feature the name and logo of the store where they can be used but will not have a payment network‘s logo on it. If your retail card doesn’t have the Visa, Mastercard, Discover, or American Express logo on it, chances are it is closed-loop.

Standard Features of Closed-Loop Cards

Closed-loop store cards have some common characteristics. These include:

  • No annual fee
  • High APR on purchases
  • Extended financing options on large purchases
  • Discounts on some purchases
  • Fair credit required to apply

Store cards are among the easiest credit cards to get. Because they apply at only one merchant and feature high interest, store cards usually only require an applicant to have an average credit score.

This modest credit requirement makes closed-looped cards an attractive offer for those looking to build credit. Be wary, however, as failure to pay your statement balance in full and on time can result in substantial interest charges.

Examples of Popular Closed-Loop Store Cards

One of the most popular examples of a closed-loop credit card is the Target RedCard. The Target RedCard allows cardholders the chance at discounts when shopping online at Target.com or in-store.

The card provides exclusive benefits, such as:

  • Up to 5% off select purchases at Target.com
  • An additional 30 days on returns and exchanges
  • Free two-day shipping on eligible orders

Just like any other retail credit card, Target RedCard customers can access services, activate their card, pay their bill, and more via the RedCard app or the Target website.

Another popular store card is the Home Depot credit card. Known as the Home Depot Consumer Credit Card, it is a single-purpose card issued by Citibank. The Home Depot Consumer Card provides extended financing for select purchases from the do-it-yourself and home improvement superstore, discounts on products, and no annual fee.

Home Depot also offers another store card – the Home Depot Project Loan Credit Card – for those who need more credit to finance a large renovation project. The Project Loan Card is similar to a small personal loan and is made for those who may not have access to a personal loan or home equity line of credit (HELOC), but have a kitchen, bathroom, or another large project that needs completing.

Other Examples of Single Purpose Cards

Just like there are thousands of chains and brands in the United States, so too are there many single-purpose, closed-loop store cards. Comenity Bank and Synchrony are two of the largest issuers of store cards, with notable other examples including:

  • Amazon Prime Store Card
  • Amazon Prime Credit Builder Secured Card
  • American Eagle Outfitters (AEO) Store Card
  • Athleta Store Card
  • CareCredit
  • Pep Boys Credit Card
  • City Furniture Card
  • Conoco Store Card
  • Flooring America Card
  • Guitar Center Store Card
  • JCPenney Card
  • La-Z-Boy Card
  • LensCrafters Card
  • Lumber Liquidators Card
  • Mattress Firm Store Card
  • TJX Store Card

This is only a small selection of available credit card options. If you have a favorite store, chances are they have a closed-loop credit card available.

How Do Closed-Loop Cards Compare to Open-Loop Credit Cards?

On the other end of the spectrum from closed-loop cards are open-loop cards. An open-loop credit card is one that can be used for purchases anywhere a payment network is accepted.

Unlike single-purpose cards, an open-loop card will feature not only the name and logo of the store or retailer, but also the Visa, Mastercard, Discover, or American Express logo as well.

Open- and closed-loop cards share some similarities. Open-loop cards, for example, typically feature higher-than-average interest rates – just like a single-purpose card. Additionally, open-loop cards also offer extended financing options and in-store and online discounts.

Unlike closed-loop cards, however, some open-loop credit cards may charge an annual fee. Often, a store that provides a credit card with a yearly fee will also offer a no-annual-fee retail card – either an open-loop version or a closed-loop version.

Popular Examples of Open-Loop Credit Cards

Like closed-loop cards, there is a vast variety of open-loop store cards. Here are some of the more popular retail cards available today:

Apparel

Department Stores

Sporting Goods

Home Improvement

Online Shopping

Many of the cards listed also feature a closed-loop version, such as those from Athleta, Gap, Old Navy, and Amazon.

Cards like the Amazon Prime Rewards Visa Signature do not charge an annual fee but do require a premium subscription. Since an Amazon Prime subscription costs $119 per year, the card has a yearly backdoor fee associated with it.

Should You Apply for an Open-Loop or Closed-Loop Credit Card?

So, should you apply for a closed-loop store credit card or one that you can use anywhere Visa, Mastercard, or any other payment network is accepted worldwide? The best option for you depends on what you are looking for in a credit card.

If you plan to monitor your spending, or only have one purchase in mind, a closed-loop card is an excellent option. Making a furniture purchase, for example, and paying it down over time, is an excellent use for a store-only single-purpose credit card.

Using a single-purpose card to rebuild your credit is another excellent choice. Because store cards only require fair credit, they are easier to get than many open-loop credit cards. A closed-loop card, like the Group One Platinum or Horizon Gold Card can help you monitor your spending – and get access to an unsecured line of credit. The only caveat, of course, is ensuring that you pay at least your minimum due balance on time every month.

Open-Loop Cards Offer Better Benefits

Conversely, if you want a credit card that earns points towards your favorite store, an open-loop credit card is a better bet. Cards like the Amazon Prime Visa Signature offer savings at additional Amazon Brands – like Whole Foods – as well as being accepted at over 40 million merchants worldwide.

Open-loop cards also offer the purchase protection and security that comes with the payment network. In the case of the Amazon Prime Visa Signature, cardholders enjoy Visa Signature benefits like:

  • Extended Warranty Protection: This program provides cardholders with an extra year of warranty coverage for eligible U.S. manufacturer goods with a warranty of one year or more.
  • Year-end Summary: A detailed summary of your spending to help simplify your budgeting in the following year.
  • Travel and Emergency Assistance Services: 24/7 assistance for Signature cardholders anywhere in the world.
  • Visa Signature Concierge: Personalized customer service to help cardholders make reservations, buy tickets, and receive shopping advice.
  • Visa Signature Luxury Hotel Collection: Signature cardholders get exclusive access and guest privileges at over 900 luxury hotels worldwide.
  • Roadside Dispatch
  • Auto Rental Collision Damage Waiver
  • Visa Cardholder Inquiry Services
  • Visa Zero Fraud Liability

Find the Best Shopping Companion for Your Wallet

For more information on retail credit cards, visit our dedicated store card resources. There you’ll find in-depth information on what to look for in your next retail card, as well as reviews of the latest credit card offers.

Related Article: What Is the Average Credit Card APR?

About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident rewards expert, covering all facets of the points game – especially travel, hotels, and airlines. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.