Store cards used to seem like a great idea. If you regularly shop with one retailer then a store card acts just like a credit card but specific to your favourite brand and with lots of benefits – doesn’t it? Although the idea may be sound in principle, store cards have recently been labelled “the devil’s debt” because more than two thirds of the cards on offer come with interest rates on purchases of 25 – 30%. So, is it ever going to be worth making purchases with a store card?
Why do people have store cards?
As well as the convenience of buying without cash, store cards have a number of other benefits too. Many offer discounts on purchases – the New Look card, for example offers 20% off a second purchase – and if you have a store card at somewhere like Topman then you’re entitled to free delivery every time you buy online. Store cards come with a credit limit just like any other credit card. However, these are frequently increased over time as customers remain loyal to the brand (and especially if card balances are not cleared!).
So what’s the problem?
Complaints about store cards to online complaints service Resolver have tripled over the past year. Problems relating to misselling seem to be the biggest issue – store cards are often sold by untrained staff who don’t explain the high interest charges. Instead, the focus is on the incentives and offers that are available to the store cardholder. As many store cards are attached to shops with a very young consumer base there can be a lack of understanding that what is spent on the card must be repaid with interest.
Why would you use store cards?
There’s nothing intrinsically wrong with store cards. In fact, if you’re on top of your finances and you’re taking a store card to access the discounts they can be a great idea. It’s when the store card is the only purchase option – and the balance can’t be cleared – that people tend to run into problems. To avoid that situation there are some key store cards rules to consider:
Use the discount offers well – so, for example, if the introductory discount is 20% then wait until you want to make a big purchase to use it. You’ll save much more if you’re getting 20% off £250 than 20% off £50.
Pay off the balance every month – if you clear the balance before the interest kicks in then you’re avoiding the major downside of store cards. And if you’re not paying interest on what you’ve spent you’re just getting the benefits of the discounts and freebies, which can only ever be a good thing.
Ask for a better deal – when you’re first signing up for the store card don’t be afraid to ask for a bigger discount or a much wider range of benefits. Most salespeople have some flexibility in terms of how far they can go with the offers they have and the more you ask for, the more benefits you’ll get.
Make the most of what’s on offer – choose the store card that works best for you in terms of the benefits on offer but don’t feel the need to spend in return. So, if there are membership events and private sales then you might simply hold the card just for this kind of access without ever spending on it.
Store cards vs. Credit cards
Both store cards and credit cards offer the same basic type of arrangement – buying on credit and paying it back later with interest. So how do the two shape up against each other?
Pro: no restrictions on which stores you can use the credit card in
Pro: generally lower interest rates than store cards
Pro: many credit cards offer 0% interest on purchase offers which means you could do all your shopping in any store interest free
Con: no exclusive benefits with a specific store
Con: it’s easy to get into problems with credit card debt, especially as many credit cards have much higher limits than store cards.
Pro: if you clear the balance every month then the interest rates won’t affect you
Pro: you’ll be part of the membership club of your favourite store and access all their offers and invites
Con: very high rates of interest on balances
Con: you can only use a store card in the store that it belongs to – the card won’t provide you with credit for any wider purchases
Con: lots of store cards – or lots of store card applications – might damage your credit score. If you have only one or two and regularly clear the balance then you can avoid this.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley