Store cards might sound like a good idea, but they’re a lot more dangerous than they seem. Here’s why the words “no, thanks!” could save you £100s.
So you’re standing in line, arms piled up with stuff that – if we’re being totally honest – really doesn’t help you stick to the student budget you’ve been so careful to follow!
However, when you finally make it to the till, the sales assistant surprises you. They reveal that not only will you get a 20% discount if you sign up for a store card there and then, but you won’t even have to pay for your purchases in full today if you don’t want to.
If you’re confident you can play the store card system without getting caught out, our hats off to you! But for those of you who aren’t 100% convinced, here’s why we recommend avoiding these cards at all costs.
What is a store card?
Before we get into the dangers of store cards, we should probably establish exactly what they are in case you’re not aware.
Store cards are basically credit cards that can only be used in one particular store – hence why they’re also referred to as ‘store credit cards’.
They allow shoppers to make purchases on credit (so often with money they don’t currently have) and pay it off in monthly instalments – just like credit cards. You’ll often be offered one in larger department stores, but a lot of high streets stores offer them too.
While we accept that it is possible to use store cards to your advantage, we’d also argue that their dangers are not made even remotely clear enough. Which is where we come in…
7 reasons not to sign up for a store card
You’ll actually pay more for your purchases
Agreeing to take on a store card means you can pay for what you buy in monthly instalment, which should be much easier on the purse strings, right? Wrong.
We would never advise anyone to take on a store card with the intention of borrowing with it. This will only result in you paying way more for your purchases, as interest piles up on your card balance if you don’t pay it off immediately.
What’s important to remember is that store cards are ultimately just a form of marketing, and a ploy to convince you to shop with this particular store instead of any others.
And who enjoys that sort of forced loyalty? If you want to be rewarded for being loyal, pick up a loyalty card instead.
It’s the same as a credit card, but worse
Store cards offer many of the same benefits as a credit card (i.e. allowing you to borrow and spend money, and spread the costs over a longer period of time). 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.
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 others that don’t offer a store card.
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 still yet to hear of anyone being turned down for one, and personally 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, which is what makes them so dangerous!
Young people are their prime targets
It’s worth being aware that, as a young person, you’re actually 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, as they know they’re the demographic most likely to take the risk of signing up without asking too many questions.
While the process of applying for a credit card would come with a full credit check, and information on interest rates would be provided prior to signing, this isn’t the case with store cards.
Store cards are essentially sold to young people as free money, with many not realising what they’re signing up to.
Store cards are sold by sales assistants, not financial experts
Store cards have higher interest rates than most credit cards, and 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 dishing them out.
Through no fault of their own, many sales assistants won’t be adequately trained to sell financial. This means there’s a chance they have no idea of 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 (e.g. sign up 10 new customers to a store card and 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)!
Interest rates are HUGE
A 20% discount on your shopping on the day may sound like a tempting reason to sign up for a store card there and then. But if you consider the maths for a second, and you’ll see that this is most definitely not a good deal in the long run.
Why? Well, interest rates on these cards are normally charged at a rate of between 25-30%!
As a result, any discount 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 normally only applies on your first purchase with the card – so after that, there’s often no saving to be made with the card at all.
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
Credit ratings are one of these things that students know exist, know they’re important, but often assume they don’t have to worry about it until they have major obligations to worry about (like buying a house).
But in reality, your credit rating can affect everything from your mobile phone contract to how big a student overdraft limit you get.
If you fail to keep up with repayments on a store card, this can have a very negative affect on your credit rating. Not to mention the fact that every time you sign up to a new financial product like this, it’s marked on your credit report.
If you’re unsure of what your credit score is, you can check it for free and learn how to improve it by reading this guide.
You’ll be bombarded with constant 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 inbox will be the clincher.
And believe it or not, even if you end up with a court summons for 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 the risks), then don’t just play it – own it!
That initial discount incentive can be useful if you’re making a larger purchase that could mean saving 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, pay it off immediately so you don’t accrue any interest and then close the account. However, we would never advise going for this option unless you’ve 100% got the cash available to pay up 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.
If this cautionary guide has come too late, and you’ve already found yourself lumped with store card debt – don’t worry! Our ultimate guide to debt has some great tips on how to pull yourself out of card debt, completely unscathed.
Thinking about getting a credit card? Our guide to student credit cards is full of advice on their pros and cons, as well as our top picks.