5 need-to-knows about store cards

A store card works like a credit card but you can only use it at one retailer and the cost of the credit is usually higher if you don't pay the balance off at the end of the month. We’ve gathered the myths and truths surrounding store cards and go over how to make them work for you and what pitfalls to avoid.

What is a store card?

Store cards provide extra discounts and deals on brands you regularly buy, but come with higher interest rates than most credit cards. The best strategy to make the most of a store card is to enjoy the discounts and repay the balance in full on time each month!

If you shop at high-street stores you may be asked if you would like to take out a store card when you are at the till. Common UK store cards include ones from Topshop, Argos and Debenhams.

How are they similar to credit cards?

You can spend before you have the actual cash and as long as you repay your balance in full, it won't cost you anything. Like a credit card, you must be 18 or over to get one.

Here are the five need-to-knows about store cards:

1. The interest is higher

This is the main drawback of store cards compared to other ways of borrowing. Most store cards charge an Annual Percentage Rate (APR) of 25% or more.

2. You don't get 0% interest deals

Make sure you explore all options available to you. Could you qualify for a 0% APR credit card or a credit card at a lower rate than the 20%-30% rate attached to most store cards? If so, you'll pay no interest on borrowing for the duration of that deal so it’s worth doing your research first.

3. Get initial purchase discounts

To reduce mis-selling, firms now don't offer deals in the first seven days. After this period you receive exclusive offers only available to store card holders like free online delivery.

4. Not all store branded cards are credit cards

Most major supermarkets offer store-branded credit cards and these are not store cards because they can be used anywhere, not just in the named shop. 

Reward cards or loyalty cards also aren’t store cards  - they allow you to collect points on your shopping to get money off your bill but they don’t allow you to ‘buy now and pay later’ like a store card does. 

5. Cashback credit cards might be a better option

Some credit cards offer pay cashback on all purchases, so you get a discount on all credit card spending. This may provide a greater benefit than a store card.

So, what are the pros of store cards?

• You get exclusive discounts and money-off vouchers at your favourite retailers
• You can get free postage and delivery costs on online orders
• Get exclusive early access to sale events

.. and the cons?

• You pay more for the cost of the credit if you don't pay off your store card in full each month
• You can only use them to buy items at one particular store
• They are often sold by sales assistants on commission who may not be able to accurately explain how the credit works
• If you apply for too many at once, they can lower your credit rating
• They can tempt you to overspend

Finally, another deferred payment method available across many online retailers is Klarna. 

Online shoppers accepted for Klarna’s ‘pay later’ service (approval is dependent on a soft credit check) have 14 or 30 days to pay for the online order, which means you can return any items you don’t like and only pay for the ones you’ve decided to keep. Similar to using a credit card, late payments will negatively impact your credit score. Klarna makes it (too!) easy to shop online for things you might not be able to afford -  before checkout, always make sure you check yourself and ask: if ‘pay later’ weren’t an option, could I afford what I’m buying?