What are store cards? Are they worth it?

A store card is a credit card that you can only use at one high street store or a group of retailers. However, due to their high rates of interest, you could be better off with a standard credit card instead. Here we explain everything you need to know about store cards. 

What is a store card?

Store cards are basically the same as credit cards but instead of being able to use your card at any shop in the UK or around the world, store cards can only be used at one shop or a group of shops. Store cards may give you some benefits or discounts, but like credit cards, you will be charged interest when you borrow on a store card, and there are other fees and charges to watch out for too.

How do store cards work?

Once you have made an application for a store card and have been accepted, the store card provider will tell you how much you can borrow. This credit limit is the maximum amount you can borrow on the store card. Each month you will be given a store card statement that shows you how much you have borrowed, how much interest you have been charged, how much you need to repay and by what date. As with credit cards, if you pay off all of the balance by the due date, you will not be charged interest on the things you have bought with the card. 

You need to be 18 or over to apply for a store card. The store card company will do a credit check to see how you have handled credit in the past and if you have had any credit problems. They will also assess your creditworthiness, to decide whether or not to accept you and what credit limit to give you. To do this, they will look at your income, how long you have been with your bank, and any information from a credit reference agency. You can generally apply for a store card online or in-store. 

What perks are available when using a store card?

Perks on store cards tend to be limited to discounts from that single store and early access to sales items.

If you are interested in getting rewards from your card, credit cards give a more extensive range, including cashback, points, vouchers and Airmiles etc.

Which retailers offer store cards?

Argos Card: https://www.argos.co.uk/help/argos-card/apply

Interest rate: 29.9% APR variable. 6 months to 12 months interest-free. If the balance is not paid in full interest is charged on the remaining balance and backdated to the date of the purchase.

Where can you use the store card: You can use the Argos store card at Argos stores and online at argos.co.uk, and Sainsbury's stores (not petrol or online).

Next Pay: https://www.next.co.uk/credit?id=credit

Interest rate: 23.9% APR variable

Offers: £10 off your first credit purchase of £15 or more. Early online access to the Next sale.

Where can you use the store card: Shop in Next stores with the Next app or card, or online at next.co.uk. 

New Look Card https://www.newlook.com/uk/info/storecard

Interest rate: 28.9% APR variable. No interest for up to 3 months when you spend £50 per transaction. Up to £200 instant credit.

Offers: 20% off in store and online when you get the card and 25% when it's your birthday.

Where can you use the store card : In New Look stores or online at newlook.com.

Store card pros & cons

Pros

  • Store cards may be easier to be accepted for than standard credit cards because of their higher interest rates and lower credit limits

  • You may be able to get discounts on purchases made with the card, or early access to sales

  • You can spread the repayments of a purchase over several months or longer, although check how much interest will be charged. The sooner you pay off a credit card or store card debt, the less interest will be charged

Cons

  • Store cards tend to have higher interest rates than standard credit cards and as a result, could cost more if you use them to borrow money

  • Unlike credit cards, you can only use store cards in one store or a group of stores

  • Store cards tend to have much lower credit limits than credit cards. If you need to borrow a higher amount of money, a credit card would be a better option

Interest rates

Store cards tend to have higher rates of interest on them than credit cards. However, if you pay the balance in full when you get your store card statement, you will not be charged interest on your purchases. 

As with a credit card, you can repay the money you have spent on the store card over months or even years. However, the longer you take to repay the debt, the more interest you will have to pay. If you don't pay off the balance in full on a store card or credit card, you will generally be charged interest on the total balance on your credit card statement.

If you consider instead using a credit card that gives 0% on purchases for a period of time, you won't pay any interest for up to around 26 months or more.

However, at the end of the 0% period, interest will be charged on the balance. Unlike a store card, you can use a 0% purchase card to make purchases with any retailer and are not limited to an individual store or stores as you are with a store card.

Note: It is rarely a good idea to get cash from a cash machine on a credit card because of the high interest charges and cash withdrawal fees.

How to avoid store card debt

  • Keep an eye on your credit limit. Don't exceed it and incur charges as this will potentially damage your credit rating

  • Set up a Direct Debit, so you don't ever forget a monthly store card repayment

  • Use a 0% purchase credit card that won't charge interest for a period of time

  • Use a credit card instead of a store card. Credit cards tend to have lower interest rates for purchases than store cards

Why choose a store card?

If you regularly shop with a particular store, you might be tempted to take out its store card. However, as store cards tend to have higher interest rates and lower credit limits, you might find that a standard credit card gives you more flexibility on where you shop and how much you borrow. A standard credit card could work out cheaper to borrow with than a store card.

How should store cards be sold?

One of the attractions of store cards used to be the discounts you would be offered at the till when buying something. It was common for retailers to give you a 10% discount or more if you took out a store card with the shop instead of paying by cash or with a debit or credit card

However, the way that store cards were sold was problematic. The staff offering the store cards often failed to adequately explain that once you applied, a credit application would be made. Often, store staff also failed to  explain that interest would be charged on the purchase if the applicant didn't pay off the full balance when they received their statement. 

 As a result of these concerns, shops are no longer allowed to offer discounts to new store card customers for the first 7 days of them having the new store card. This change was made to give people time to change their mind. It also helps prevent people from opening up a store card just to get a discount and ending up with a relatively high rate of interest. If you do sign up to a store card, you have 14 days to change your mind and cancel the card.

Alternatives to store cards

Instead of using a store card, you could use one of the following credit cards: 

Rewards credit cards

Consider choosing a credit card linked to one of your favourite shops. When you use the card to buy things, you earn points or discounts to use at the store or elsewhere. Unlike store cards, these credit cards can also be used to make purchases wherever you like, and you will still earn rewards, although you usually get more points or rewards when you spend at the retailer linked to the credit card. Rewards cards are offered by John Lewis, Marks and Spencer, Debenhams, Sainsbury's and Tesco, for example. 

Cashback credit cards

With a cashback credit card, you earn a small percentage of your spending as cashback. The cashback that you earn on your spending is typically credited to your credit card account once a year. Some cashback credit cards give you a higher amount of cashback in certain stores, and for the first few months of having the card. 

However, cashback amounts tend to be very small. Some cards give you 0.5% or 1% of your spending back, which would be £5 or £10 if you spent £1,000 on a cashback credit card, for example. As we have discussed, if you borrow money on a credit card, you will be charged an average interest rate of around 21%. If you don't pay off the full credit card balance each month, the interest you are charged will probably be much more than any cashback you have earned on your spending.


27 January 2021