If you’ve ever been tempted to take out a store card, you’re certainly not alone. The promise of attractive discounts and offers can be enough to encourage anyone to sign on the dotted line and leave the shop with a new card in their wallet or purse.
But exactly how do store cards work and are they right for you? We take a closer look…
What are store cards?
A store card is a type of credit card that can only be used to make purchases in one particular retailer. Sales assistants will sometimes ask if you’d like to apply for one when you’re paying at the till, often with the offer of a discount to entice you.
As with other credit cards, store cards can be used to pay for items upfront and the balance is paid off at a later date. At least the minimum payment must be made each month and if you don’t pay off the balance in full you will be charged interest. Credit limits are typically lower than for standard credit cards.
Store cards shouldn’t be confused with standard credit cards offered by stores and supermarkets such as Sainsbury’s, Tesco and John Lewis. Unlike store cards, these credit cards can be used for all purchases made anywhere, not just those made in the named shop.
Many of these cards also offer introductory 0% deals on purchases or rewards and loyalty points.
What are the advantages?
Store cards have a number of benefits, such as:
- discounts and special offers These can include a percentage off your first purchase, savings on your birthday, and reward points.
- membership perks Some cards also offer perks such as exclusive shopping events or early access to sales.
- building your credit score Store cards are often easier to get hold of than standard credit cards so they can be useful if you have a low credit score. BUT it’s vital you use your store card with care – missed or late payments will only damage your credit score further, and it’s important not to spend more than you can afford to pay back.
What are the disadvantages?
There are also several drawbacks to be aware of:
- high interest rates The annual percentage rate (APR) on a store card is typically between 25% and 30% – that’s much higher than you will usually pay on a standard credit card. If you are unable to pay off your balance in full each month, the amount you pay in interest will far outweigh the benefits.
- spending limits You will usually only be able to spend on your store card in one retailer and remember, credit limits are generally low (although this should also prevent you from racking up huge sums of debt).
- no interest-free offers Store cards do not typically offer introductory 0% deals which means they are not a good option if you need to spread the cost of your spending over a number of months.
Are they right for you?
It can be easy to get sucked in by store cards. If you’re paying for a large purchase, the offer of taking 25% off the price tag by signing up for a card can be difficult to resist.
However, store assistants are often targeted on card sales and earn commission for signing people up, and they may not have been fully trained on the financial aspects of the card.
If you’re unsure of how a card works, make sure you ask or check the terms and conditions carefully. Never feel pressured into agreeing to something you’re not comfortable with or don’t fully understand.
If you decide to go ahead and sign up, only spend what you can afford to pay back in full each month so that you don’t pay interest – it’s worth setting up a monthly direct debit to help you remember. If you can’t pay off the full amount, make at least the minimum payment – more if you can.
Be aware there is usually a fee to pay for late or forgotten payments and your credit rating can also be affected. There will also be a fee to pay if you exceed your credit limit.
Are there any alternatives?
If you are thinking about applying for a store card to make a large purchase, a 0% purchase credit card could be a better option.
This type of card enables you to spread the cost of your spending over several months interest-free. However, be aware the best deals are reserved for those with good credit ratings and it’s important to clear your balance before the 0% deal ends and interest kicks in.
Alternatively, if you’re looking for a card with incentives, you could consider a rewards or cashback credit card.
Some rewards cards allow you to earn loyalty points in certain retailers or supermarkets – such as those mentioned above – but you can use the card wherever you want. Cashback credit cards, on the other hand, allow you to get back a percentage of what you spend in certain shops or on certain items or services.
Be aware that reward and cashback credit cards often charge high rates of interest so it’s important to pay off your balance in full each month. Some also charge annual fees.
