First things first – what are store cards?
These are like credit cards but are specific to a designated store, so unlike credit cards, they can’t be used elsewhere. They do share similarities with credit cards though, such as the accruing of interest and often the requirement to be repaid later (see further down). Many shops offer them to encourage customer loyalty, but they shouldn’t be confused with loyalty cards, which offer a reward in the form of points or other offers. Although some do offer discounts as well.
What are the risks of using store cards?
It depends on the person, but for some people it can be all too tempting to spend more money on a store card because of the lack of cash exchanging hands. A piece of plastic (the store card) is handed over and the customer receives the goods. It’s only later when the first payment is due when reality can set in. What may have seemed like a bargain in the store, now becomes a lot more expensive as interest is added to the remainder each month. Then if payments are missed, more interest is accrued. In some cases, court costs are also added, if things escalate that far.
So why would anyone want a store card?
There are reasons to get a store card. Some stores will offer a discount for the first purchase(s) using their card. If you’re planning on making a cash purchase, then you can save money if you sign up then use the money to pay off the balance in full.
Although this is rare, some stores (such as a certain well-known high-street catalogue shop) will also offer higher-priced purchases on a buy now pay later (either 3 or 6 months) basis.
This is perfect for those times when something breaks and needs to be replaced. You can get the goods now and pay for them later without incurring interest, provided you pay in full before the 3 or 6 months are up. If you don’t, all the interest is added to your balance.
If you’re the kind of person who can keep up with payments and isn’t likely to forget, then you can make a store card serve your needs.
Improving your credit rating
If you’ve never had credit before or had trouble making repayments in the past, then you may not have much of a credit rating or a poor one. If you ever want to apply for a significant loan or mortgage, you need a good rating. By taking out a store card and meeting the repayments on time, you can improve your rating and increase your chances of getting credit such as a mortgage, in the future. If you’re likely to get side-tracked and forget the ‘due by’ dates, you may want to set reminders in your phone and spend time ensuring that you have the money set aside to cover your monthly payment.
You will also find that many jobs which involve working with money and/or the general public will insist on doing a credit check, so you can improve your chances of being employed, as well as getting a bank account if you don’t already have one, or if you decide to apply for one with better perks.
What to look for when getting a store card
Most of us never read the terms and conditions, but you should. You need to know how much interest you pay on purchases. For example: if you spend £300 in one purchase, but end up paying double or even triple in interest after only paying the minimum each month, then you probably won’t want to sign up.
Consider whether you really need the item(s). Would you have made the purchase anyway if you didn’t have the store card? Is it available cheaper elsewhere? That may mean saving up for a longer period of time to buy it, but the money you save in interest alone could be worth the wait.
If you really need the item, shop around, not just for prices on the goods you want to buy, but for the interest on different store cards and the length of time you have to repay the money and when the first payment is due. You should also consider how much you can afford to pay each month. Paying a little more than the minimum could potentially save you money on the total amount of interest.
What are the alternatives to store cards?
If you’ve decided against using a store card but are still struggling to purchase something you need, there are other options. You can borrow money from friends and family, usually interest free, or you can check out charity shops. Some goods aren’t ideal to use second hand, but many items can be in great condition and completely usable, so it’s worth a search if you don’t want to get yourself into debt. Also, consider downgrading. For example, if you’re used to a certain brand or size of appliance, such as a cooker, you might get it cheaper in a lesser-known brand or smaller size.