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How The Target Credit Card Works

Author: Matthew Davis

Store credit cards are the object of much criticism. Because of Target's 2014 data breach, signing up for its credit card might come with a fair amount of skepticism on anybody's part. But the data breach can happen to any store if you believe the experts. Is the Target REDCard worth a place in your wallet?

The Bank

Store cards aren't quite what you think. The retailer makes a deal with a financial institution to offer a branded credit card. Both the store and the bank share in the interest and fees the customer ultimately pays.

In this case, the bank is TD Bank. A subsidiary of The Toronto-Dominion Bank of Toronto, Canada, it is one of the 10 largest banks in the United States. It has around 26,000 employees and 1,300 locations in the U.S.

The (RED)Card

The Target REDcard comes in two forms: a traditional credit card and a debit card that automatically draws from your existing checking account. Each has similar perks.

The card isn't about rewards. You don't build up points as you purchase and there's no sign-up bonus. Instead, you get a 5% discount every time you use the card at a Target store. It might seem a bit boring, but the math comes out in your favor. By not having to wait until you amass a bunch of points, you receive rewards right away.

You don't get the discount on prescription drugs, but there's a separate program through Target's pharmacy that can help. And when you use the debit card, you can get as much as a $40 cash withdrawal when you check out.

In addition, you won't pay any shipping if you shop at target.com and you can get an extra 30 days to return a purchase. Also, you won't pay an annual fee. One unusual benefit: You can designate an eligible K-12 school to receive a donation from Target of 1% of your credit or debit REDcard purchases at Target's store or website.

The Fine Print

The credit card's APR of 22.9% is high, but standard for store cards. It will vary based on the prime rate. Expect it to move higher in the coming years. And there's no introductory rate.

You have 25 days after your billing cycle ends to pay all charges and avoid interest. The late payment fee is up to $35 based on payment history, but there is no penalty APR. This isn't like a normal credit card. There are no balance transfers and the card can only be used at Target stores.

Financial gurus would call this a positive since it doesn't allow a person to charge up the card at any store but some consumers may find it restrictive. If you're looking for a card that allows you to earn rewards on purchases anywhere, this isn't the card for you.

The Bottom Line

The Target REDcard is a true store card. It's not for use outside of Target and it comes with an interest rate much higher than a traditional credit card. On the other hand, the instant 5% discount on every purchase is straightforward and simple. There are no rewards points to keep track of and the monetary value of the reward is often higher than you get from other cards.

However, the APR is high enough that any interest payments made will wipe out the benefit that comes from the discount. Only charge what you can pay at the end of the month.

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