What are store cards?

Store cards are essentially a form of credit card which can only be used in the store they are associated with, plus others in the same retail group.
While store loyalty cards don't come with any commitments or agreements and generally just enable you to collect points to get money off future purchases, store cards are a very different beast.
Though it's not always made clear at the checkout where they're offered as a matter of course in many stores, store cards are an official form of credit which must be paid back with interest.
It's likely that during your high street shopping you will have been asked by many a kindly sales assistant whether you would like to open a store card today. This enquiry will usually be coupled with a tempting discount on your day's shopping, making you feel you've got nothing to lose by signing up.

So what's the catch?

Unfortunately, what is often left unmentioned is the sky high rate of interest (APR) that your 'discounted' purchases will attract if you don't pay off your balance in full when you get your first statement. While a standard credit card might apply interest at a rate of 16% APR, it's not unusual for purchases made on a store card to attract interest at a rate of around 30% - far outstripping even the less competitive credit cards.
Consequently your purchases will start to accrue interest at an alarming rate - and the amount you end up paying out in interest can easily over-shadow the benefit of any initial discount you might have enjoyed.
Remember that store cards are a form of credit and so many of the rules for credit cards apply, for example:

  • When you sign up for a store card you'll have a credit search applied to your credit file.

  • You'll get a mark on your credit history if you miss a payment.

  • Your spending (which is a form of borrowing) on the card will affect your credit rating.

The major difference between store cards and credit cards is that store cards come with a significantly higher rate of interest and can only be used in the store they are associated with.

Are they ever a good idea?

Store cards should be approached with caution at all times. However if you play by the rules you can make them work to your advantage.
The Rules
First a word of warning - you'll have to be sure you have the funds and discipline to pay off your balance in full as soon as you get your statement every month. If you're sure you can do this, it can, on occasion, be worth signing up for a card in order to take advantage of the discounts on offer.

  • Remember you will only be saving money if you can pay off your balance in full; otherwise the interest charges will outweigh any discount.

  • It's still worth shopping around to see if you can get the same item at a cheaper price than the store card discount allows.

  • Wait until you need to make a relatively large purchase in order to get the full benefit of the discount.

  • Signing up to several different store cards at once is likely to impact your credit score, so is best avoided.

  • Make sure that you won't be applying for more credit such as a credit card or loan anytime soon - multiple credit searches on your file are likely to negatively impact your credit score.

If you're careful and disciplined you can make store cards a benefit to your finances rather than a hindrance; just remember always to pay your balance off when you get your statement so you aren't stung by exorbitant interest charges.