Private Label Credit Cards: Overview, Benefits and Examples

A private label credit card is a store-branded credit card that is intended for use at a specific store. A private label credit card is a type of revolving credit plan managed by a bank or commercial finance company for either retail or wholesale manufacturers, such as department and specialty stores. Private label credit cards do not carry a credit card network logo such as Visa or Mastercard and generally are not accepted by other merchants.

The private label credit program allows retailers to offer more lenient and extended terms to customers than they could otherwise. Many stores offer private label credit cards to their customers to encourage them to spend more by offering the convenience of a credit card and deferred payment. In addition, when a customer makes a purchase with a private label credit card, they will usually earn loyalty rewards, such as a discount on a future purchase. In this way, a private label credit card can encourage repeat business and customer loyalty. Private label cards can also make shopping more convenient for customers through features such as returns without receipts.

How Do Private Label Credit Cards Work?

Private label credit card programs partner with a third party financial institution to manage the card program for the business. These third-party partners perform several functions. These include the issuance of cards, funding of credit, and the collection of payments from customers. The financial institution and the retailer jointly establish the criteria for credit. The financial institution is then responsible for the underwriting and card issuance process.

Private label credit cards are similar to other credit cards in that they charge interest if you carry a balance, charge a fee if your payment is late and have a grace period if you don’t carry a balance and paid your previous credit card bill in full and on time. They are also similar to other credit cards in that while private label credit cards do not carry a payment network's logo, they are still backed by a payment processor and issuing bank. The payment processor makes it easy for stores to offer private label credit cards by offering cards that work with the store’s existing terminals and point-of-sale equipment.

Examples of Private Label Store Credit Cards

Target is one of many retailers that offer a private label credit card as of 2020. Called the RedCard, it gives consumers 5% off all purchases at the point of sale, free shipping on most online purchases and an extra 30 days on top of the standard return policy applicable to get a refund for unwanted purchases. Similarly, Nordstrom offers a private label credit card that gives customers $40 off a future purchase if you use your card the day it's approved.

Full-Service Credit Cards

Nordstrom also offers a co-branded Visa card that gives store-specific benefits, rewards on all purchases and can be used anywhere Visa is accepted. Target once offered this type of product as well but no longer offers a general use or full service credit card. This type of comprehensive credit card is common from private label retailers. Borrowers with a good credit profile and high credit score are likely to be approved for a full-service credit card that receives the benefits offered from the retailer while also being accepted at other merchants as well.