By Taylor Tepper
July 26, 2016

If you’ve ever bought a new shirt or toy car from Target, whether online or in person, chances are you’ve been asked to apply for a Target REDcard credit card. Chances are you probably bought something at Target (it had almost $74 billion in sales last year), saw advertisements for the card, and wondered if it was right for you.

This is a perfectly valid inquiry. Store-brand credit cards are inherently tricky pieces of plastic to use correctly, and can cost you real money if you make a few innocent mistakes. At the same time, many come with enticing cash back bonus programs.

Of course, any mention of credit cards and Target in the same sentence might elicit acid flashbacks to perhaps the worst hack of a retail store in U.S. history, back in 2013. Reasonable people may be concerned that the Target card might not be safe.

Should you sign up? Here’s what you need to know.

The Case For

You should strongly consider the REDcard if you a) shop at Target, and b) are a responsible credit card user.

The benefits of the REDcard are easy to understand: You receive a 5% discount on pretty much everything in the store, from clothes to cookies to camping gear. Target.com shoppers also receive free shipping.

So a $100 purchase made with the REDcard is immediately cut to $95, and that includes anything on sale or bought with a coupon. Keep in mind that 5% rate of return on normal spending is more than three times greater than the yield on a 10-year U.S. Treasury bond.

To put the REDcard’s reward structure in perspective, the best flat-rate cash back cards earn you 2% cash back, like the MONEY Best Credit Card for cash back rewards, Citi Double Cash.

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Cardholders don’t have to pay an annual fee, and they’ll also have an additional month for returns. Plus, the card comes with a computer chip and a corresponding PIN, similar to a debit card, to limit in-store fraud. So-called chip and PIN is considered more secure than most cards, known as chip and signature, which only includes a chip.

The Case Against

Of course, you can use your Citi Double Cash anywhere that accepts MasterCard, while your REDcard is only valid at the bulls-eye (that is, a Target store).

The card comes with other disadvantages, too. You won’t receive 5% back on prescriptions, clinical services, or eye exams, nor will you receive a discount on a gift card — a favorite ploy of credit card reward maximizers. Here’s a full list of the restrictions.

Note that REDcard’s remaining negatives are endemic of most retail brand credit cards.

1. Those who carry a revolving balance will confront a 23.15% annual percentage rate, or about seven percentage points higher than the national average. By comparison, the Barclaycard Ring comes with an 8.25% variable APR. REDCard late payers must fork over a $37 fee, $11 more than the Barclaycard Ring. The MONEY Best Credit Card for carrying large balances, Citi Simplicity, never charges a late payment fee. The REDCard is not the card to carry debt on.

2. You’ll also likely have a relatively low credit limit. That means cardholders will have to be circumspect when they head out for back-to-school shopping, since a large portion of your credit score is tied to your credit utilization rate — how much you owe on the card compared to its limit. Experts suggest you use only 20% to 30% of your available credit, which means you should only charge $200 a month with a $1,000 credit limit.

Verdict

Target shoppers should enter into this credit card agreement very carefully. You’ll need to understand that a revolving balance will be extra pricey, as will late fee payments, and to be constantly vigilant that you spend no more than 20% of your available credit. You can set up alerts on your phone to help you keep track.

If you can commit yourself to those basically principles of credit card management, the REDcard could be a valuable addition to your wallet. A 5% cash back card without an annual fee is rare. Just make sure you know what you’re doing.

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