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.
How are they different to credit cards and loyalty cards?
Store cards shouldn’t be confused with standard credit cards offered by the likes of Sainsbury’s and Tesco.
These are issued by the banking arm of the supermarket or store and, unlike credit cards, can be used for all purchases made anywhere, not just those made in the store or group of stores your card is from.
Loyalty cards are different too. These are not credit cards at all but allow you to collect points from a store or group of stores, which you can then redeem at a later date. Boots Advantage card, or Sainsbury’s Nectar card are some of the best-known examples.
Do store cards offer a 0% ‘grace period’?
Unlike many credit cards, store cards don’t typically come with introductory 0% deals on purchases. However, they usually offer an initial discount on the first items you buy with the card.
This is usually offered at the till, when you may be asked if you would, “like to save 10% on your shopping” in exchange for signing up to a store card.
Unless you had been planning to get a store card, your best answer is almost certainly no. A 10% discount on shopping is a small sweetener for a potentially very costly debt.
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What are the advantages?
Used very responsibly (which means always clearing your balance every month), store cards do have a handful 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. While you will still need to be credit checked, store cards are often easier to get hold of than standard credit cards. This means 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 crucial not to spend more than you can afford to pay back.
What are the disadvantages?
But there are more drawbacks and pitfalls to be aware of with store cards, than there are perks. Here are the main ones:
- Very 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)
- Temptation to spend: Having a line of credit available for your favourite shop requires discipline the store hopes you don’t have
- 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.
Is a store card right for you?
Especially if you are unarmed with the right information, it can be very easy to get sucked in by store cards. If you’re paying for a large purchase, the prospect of an unexpected discount for 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. They may also 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 – but always more if you can.
What happens if I miss a payment?
There will almost certainly be a fee for late or forgotten payments on a store card, while your credit score will also take a hit. Fees are also payable if you exceed your allocated credit limit.
Top alternatives to store cards
If you are tempted to apply for a store card to make a large purchase, make sure you have explored these alternatives first.
Interest-free purchase credit card
Also known as a purchase credit card, this type of plastic allows you to spread the cost of your spending over several months interest-free. You will also be able to use it anywhere, not just in one store or group of stores.
However, be aware the best purchase cards are reserved for those with good credit ratings. And it’s just as important to clear your balance before the 0% deal ends and interest kicks in.
Rewards or cashback credit card
If you’re looking for a card with incentives, you could consider a rewards or cashback credit card. Many 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 of the best ones also charge annual fees.
Loyalty card
If you are particularly loyal to store or group of stores, make sure you are signed up to any points scheme it operates. It’s usually free to apply for a card, or to download the app and collect points every time you shop. There’s no risk and nothing to lose.
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