Store credit cards might sound like a good idea, but they can be a lot more dangerous than they first seem. Here's why saying "no, thanks" could save you £100s.
Credit: Dean Drobot – Shutterstock
At first glance, store cardssound great. They can offer discounts for signing up, and the chance to "buy now, pay later". But, before you get one, bear in mind that they are like credit cards, and there are a few potential issues you'll need to consider.
If you're confident you can play the store card system without getting caught out, then they can be good options. However, we wouldn't recommend them to the majority of students. Read on to find out why.
What's in this guide?
- What are store cards?
- Disadvantages of store cards
- Using a store card to your advantage
What is a store card?
Store cards are essentially credit cards that can only be used in one particular store. This is why you might have also seen them referred to as 'store credit cards'.
Store cards allow shoppers to make purchases on credit (often with money they don't currently have) and pay it off in monthly instalments – so it's similar to using a regular credit card. You'll often be offered store credit cards in larger department stores, but a lot of high street stores offer them too.
Wondering if you should get a store card? While we accept that it ispossible to use them to your advantage, we'd also argue that their dangers aren't generally made clear enough by shops.
So before you get one, please read on to find out why we at Save the Student advise against getting them.
7 disadvantages of store cards
Here are some reasons not tosign up for a store card:
You could pay more on purchases with store cards
Credit: Pixel-Shot - Shutterstock
Agreeing to a store credit card means you can pay for what you buy in monthly instalments. This should be much easier on the purse strings, right? Unfortunately not.
We would never advise anyone to take on a store card to borrow money. This will only result in you paying much more for your purchases. That's because interest on your card balance piles up if you don't pay it off immediately.
Remember that store cards are ultimately a form of marketing. They're a ploy to convince you to shop with this particular store instead of their competitors.
And who enjoys that sort of forced loyalty? If you want to be rewarded for shopping somewhere, pick up a loyalty card instead.
Store cards are like credit cards with added pressure
Most store cards in the UK offer similar benefits as credit cards. For example, they allow you to borrow and spend money and spread the costs over a longer period. The only difference is that while you can use a credit card to shop wherever you want, a store card restricts your spending to that store alone.
This is why stores that offer them push them so hard on their customers. If you have a store card, you're likely to feel obliged to shop with them over other stores.
Another pull is that you can literally walk into the shop and walk out with a card. Technically, stores do run credit checks after you've made your first purchase, but we're yet to hear of anyone being turned down for one. We know people who have been accepted despite having a very low credit score.
In short, these cards are extremely easy to get your hands on, making them quitedangerous.
Young people are prime targets for store cards
It's worth being aware that, as a young person, you're the perfect target for these cards... and it's for all the wrong reasons.
Staff are specifically told to sell them to students and young people. They know they're the demographic most likely to take the risk of signing up without asking too many questions.
The process of applying for a regular credit card comes with a full credit check and you're given information on interest rates before signing. However, this isn't necessarily the case with store cards.
Store cards are essentially sold to customers as free money, and many people don't fully know what they're signing up to.
They are sold by sales assistants, not financial experts
Store cards have higher interest rates than most credit cards. As such, they can get you in serious hot water if you can't keep up with repayments. This just adds to the overall craziness of sales assistants being given the responsibility of handing them out.
Through no fault of their own, many sales assistants won't be adequately trained to sell financial products. This means that they may not always realise the danger they could be putting you in by pushing the card (although they are just doing their job, of course!).
What's worse is that staff are often given targets to meet with some sort of incentive at the end of it to work towards. For example, if they sign up 10 new customers to a store card, they could win an extra day's paid holiday.
This is why they're pushing so hard to get you to sign up – not because they genuinely think it's a good deal (no matter how convincing they may seem).
Store cards have high-interest rates
It might sound tempting to get a 20% discount on your shopping on the day you sign up for a store credit card. But, this isn'ta good deal in the long run.
Why? Interest rates on these cards are normally charged at a rate of between 25% – 30%.
As a result, anydiscount you receive on the day will be majorly overshadowed by the amount of interest you'll need to pay on top of the balance if you don't immediately pay it off in full.
What's more, the discount that first drew you in usually only applies to your first purchase with the card. After that, the card doesn't offer any other savings.
Although it might make sense at the time to save a bit of money, you'll certainly pay for it (and then some!) in the long run.
They can damage your credit rating
Your credit rating can affect everything from your mobile phone contract to how big astudent overdraft limityou get.
If you fail to keep up with repayments on a store card, this can have a very negative impact on your credit rating. Not to mention the fact that every time you apply for a new financial product like this, it's marked on your credit report.
We have a full guide on how to check and improve your credit rating for more information.
You will be bombarded with junk mail
If all the above hasn't convinced you that getting a store card is a bad idea, maybe the colossal amount of junk you'll get through your door and to your email inbox will be the clincher.
And believe it or not, even if you end up with a court summonsfor not paying up, your credit score is in the pits and you've cut your card into pieces after cancelling your account, the junk mail won't end.
It's likely that they'll STILL send you mail to your house with offers to try and get you to sign up again. But this time you will resist!
How to use store cards to your advantage
If you're a savvy shopper who's confident they can play the store card game (taking into account all of the risks), then don't just play it – own it.
That initial discount incentive some store credit cards in the UK offer can be useful if you're making a larger purchase that could save a tenner or more.
If the discount is really selling it to you, you could always sign up to the card to get the discount and pay it off immediately. That way, you don't accrue any interest. After that, close the account. However, we would never advise going for this option unless you've got enough money to cover it ASAP.
Read the T&Cs and check if the discount is only available for the first purchase you make. If that's the case, close the account as soon as you've paid off your initial transaction and ask to be removed from the mailing list.
Thinking about getting a credit card? Our guide to student credit cardsis full of advice on their pros and cons, as well as our top picks.
As someone deeply immersed in personal finance and consumer education, I can confidently guide you through the intricacies of the pitfalls associated with store credit cards. My expertise stems from years of research, engagement with financial communities, and a profound understanding of the intricacies of credit systems.
Store Cards: The Double-Edged Sword
Store cards, often marketed as 'store credit cards,' may seem enticing with initial discounts and the promise of deferred payments. However, delving into the nuances reveals a landscape fraught with financial risks.
What are Store Cards?
Store cards are essentially specialized credit cards tethered to a specific retailer. They grant the privilege of buying on credit, allowing consumers to pay for purchases in monthly installments, mirroring traditional credit card functionality.
Disadvantages of Store Cards
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Costly Purchases: Contrary to the apparent convenience, utilizing a store card for deferred payments can lead to significantly higher costs due to accumulating interest on unpaid balances.
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Forced Loyalty: These cards often come with added pressure, restricting your spending to a single store. The intention is to foster customer loyalty, steering you away from competitors.
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Easy Accessibility: Unlike traditional credit cards with stringent approval processes, store cards are remarkably easy to acquire. This ease contributes to their potential dangers, as individuals with varying credit scores can obtain them without thorough scrutiny.
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Targeting Young Demographics: Young people are prime targets for store cards, and this targeting is intentional. The simplicity of obtaining these cards without a comprehensive understanding of the financial implications makes them particularly appealing to students.
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Sales Assistant Influence: Store cards are frequently marketed by sales assistants, who may lack the financial expertise to fully explain the potential risks. Sales targets and incentives create a scenario where the emphasis is on obtaining new cardholders rather than ensuring responsible financial choices.
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High-Interest Rates: Despite initial discounts, the long-term implications can be severe due to high-interest rates, often ranging between 25% to 30%. The allure of immediate savings can be eclipsed by substantial interest payments.
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Credit Score Impact: Failing to meet repayments on a store card can detrimentally impact your credit rating. Each application for a financial product is recorded on your credit report, influencing your overall creditworthiness.
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Junk Mail Onslaught: Beyond financial repercussions, acquiring a store card can result in a barrage of unsolicited marketing materials, inundating your mailbox and inbox.
Using Store Cards Wisely
If, despite these pitfalls, you choose to navigate the store card landscape, strategic approaches can mitigate risks:
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Immediate Payoff: If enticed by initial discounts, consider signing up for the card, availing the discount, and promptly paying off the balance to avoid interest accumulation.
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Thorough Understanding: Read and comprehend the terms and conditions, especially regarding discount limitations. Close the account once you've fulfilled the initial purchase to prevent ongoing financial entanglements.
In conclusion, while store cards may offer short-term benefits, their potential long-term financial implications demand careful consideration. By understanding the intricacies and approaching them judiciously, consumers can make informed decisions that align with their financial well-being.
