Why have a Visa card when you could have a Dillard’s Visa card? Or if you don’t shop at Dillard’s, you could select from any number of airlines, hotel chains and retail stores to emblazon the front your credit card.
Known as co-branded cards, these credit cards bring together businesses, banks and card issuers to create partnerships that are mutually beneficial. Banks might gain access to new customers while brands get to offer their fans discounts, exclusive offers and flexible payment options.
It’s exactly that type of win-win scenario that led Credit One Bank to recently launch a credit card with NASCAR. “We’ve been looking for ways to expand our brand,” says Laura Faulkner, vice president of marketing communications for Credit One Bank. “We find NASCAR has a huge brand nationwide.” In exchange for access to the racing body’s considerable fan base, Credit One Bank is sponsoring the Chevrolet No. 1 car and will be a partner for the 2016 NASCAR Sprint Cup series.
Consumers can come out ahead in these agreements as well. Co-branded cards can offer substantial perks, but credit card experts say fans should choose wisely rather than simply reaching for the card from their favorite brand.
The perks of co-branded cards. For many consumers, the main reason to get a co-branded credit card is because they often come with benefits not found on general purpose credit cards. What’s more, those benefits are often geared specifically for fans of a specific brand.
“It’s attractive because you earn rewards for your loyalty,” says Maria Schriber, the community, content and data manager for Wallaby Financial. For example, the Credit One Bank NASCAR Visa gives 1 percent cash back on most transactions, but doubles that amount for purchases made on NASCAR.com. Meanwhile, travel cards such as the United Mileage Explorer Plus Visa can offer perks such as free checked bags and bonus miles for frequent flyers.
There can also be financial benefits to these cards. “Co-branded cards offer a little better interest rate than non-cobranded [retail] cards,” says Matt Schulz, senior analyst for CreditCards.com. In a 2015 review of interest rates, CreditCards.com found store cards from Staples and Zales came with the highest rates while co-branded cards from Dillard’s and Nordstrom were among the lowest.
Why you might want to think twice. While co-branded cards may have lower interest rates than store cards, their rates may be higher than Visa, MasterCard and American Express cards that aren’t co-branded, Schriber notes. Plus, many co-branded cards come with annual fees. “It helps offset the costs of the rewards program,” Schriber says. “It’s important to make sure the rewards outweigh the fee.” As a result, those who carry a balance or those who aren’t spending a significant amount on a particular brand may find a co-branded card ends up costing more money than it’s worth in terms of rewards.
Here’s how to decide. Since multiple card applications and too much available credit have the potential to affect credit scores, consumers should be deliberate about which accounts they open. “It’s really important not to be pressured into signing up for one of the cards,” Schulz says. Many retail stores try to encourage impulse decisions at the cash register by offering a discount for opening an account. Rather than accept, request a brochure to take home and review. If you decide you want to open the card later, chances are the same discount will be available the next time you go shopping.
Customers should also consider whether they realistically spend enough on a particular brand to justify the card. Beyond that, decide whether the perks are something you actually need or can use.
Finally, don’t forget that reward programs can and do change. For co-branded cards that offer points or miles, it’s “really important to earn and burn those points,” Schriber says. “Don’t hoard them.” Otherwise, if the program changes its redemption policy, you could find yourself with a pile of devalued points. Co-branded cards can be a smart addition to your wallet, particularly if you’re brand-loyal and spend a significant amount with a certain company. However, be sure the cost of the card is justified by the rewards you receive.