Store cards are basically a form of credit card issued by a retailer for use in their store or group of companies.
Usually there will be some customer ‘specials’ or incentives included with the card to make it attractive for you to sign-up and use it e.g. a percentage off the first purchases you make with it, invitations to store cardholder events and offers, reward points on purchases you make which once you’ve earned enough points entitle you to reward vouchers to spend in the store.
Like some credit cards, some store cards now also offer 0% interest on purchases for a period of time e.g. B&Q are offering 3 months interest free credit with their B&Q Account card if you spend £500 or more in one purchase.
If by 29 December 2008 you spend £2,000 or more on your B&Q Account card in a single purchase the interest free credit period is increased to 6 months.
In order to be approved for a store card, the store will subject you to a credit search using a credit reference agency.
Don’t forget every time a credit search is conducted on your behalf it is recorded against your credit file. Be aware that if you have a large number of such credit checks it can start to raise questions and may impact on your credit rating.
In addition to the credit check, to apply for the card you usually have to be over 18 and have a permanent UK address.
The card will have a set credit limit. This will vary depending on the store and also your own specific circumstances, but typically will initially be around £300 – £500.
Store cards usually charge a higher rate of interest compared with a standard credit card. For example, at the time of writing the typical APR on a Marks & Spencer chargecard is 23.9% whereas on the M&S credit card it is 15.9%.
Sometimes a store card is considered as an easier option to get credit, particularly if you have a poorer credit history.
Many people find themselves getting into significant debt by not being careful enough with the amount they spend on store cards. It is easy to find you have reached the credit limit on a number of them and then find you are not in a position to clear off the balances each month.
As with a standard credit card, the store card will have a mimimum monthly payment. Often this is set at £5 or 3% of the balance, whichever is the greater.
If you only pay this minimum amount though, the outstanding balance will attract the high rate of interest and you’re likely to be paying more for your credit than you could through other options, including standard credit cards and loans.
All in all, there are undoubtedly good reasons to take out a store card, but on balance it seems other credit routes, including standard credit cards, might be a better option in the majority of cases.