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Updated 22/2/12

Beware the evil that is the store card. These things could quite easily ruin your finances without you even realising it. You might be able to tell that here at Moneymagpie we really don’t like them, however, if you’re clever, you can make the most of their offers and not be saddled with the ensuing debt. We show you how to beat them at their own game.

• What store cards mean for your credit rating
• What the figures really mean for your finances
• How to beat them at their own game

What is a store card?

Essentially a store card is a credit card, but instead of using it everywhere you can only use it in the relevant shop or group of shops.

Often store cards are confused with loyalty cards, which are cards that allow you to collect points when you spend in a particular store. Unlike loyalty cards, store cards allow you to borrow money. You shouldn’t confuse them with rewards credit cards either, which can be used anywhere but give you rewards linked to one specific store.

Make no mistake, if you’re not careful store cards mean only one thing – debt!

Store cards and your credit rating

A big problem with these cards is that retailers don’t check your credit rating before letting you to have one. Although this sounds great in theory, they’re actually allowing those who don’t have a large disposable income to get into debt without explaining the consequences.

When you apply for a store card, a search is added to your credit file. If you apply for lots in a short space of time, your credit score will drop significantly, making it harder for you to get credit in the future.

Remember that your rating will be affected according to how often you apply for store cards, rather than how many you apply for, so be careful.

If you want to check your credit file, visit the Experian website where you can get a free 30-day trial. For more information on exactly how your credit file works, click here.

Sneaky store cards

Essentially, store cards entice customers with the promise of great deals and discounts and are promoted as a way to manage your shopping.

Many retailers hope you’ll sign up and end up paying horrendous rates of interest on any purchases you make. Worst of all, research suggests that shops attempt to conceal those high rates and their consequences from unsuspecting customers.

A study by the Office of Fair Trading in 2007 found that just 23% of shoppers were given the chance to take the application form away with them so they could consider their options.

Of those who did ask, three quarters had their request to do so refused. In about a third of the cases, no information about the interest rate was given.

The Competition Commission calculated that store card users have been overcharged by £55m a year. That’s pretty horrendous when you consider that an estimated one in six of us has a store card. In fact according to Money News, £4.8 billion is spent on store cards in the UK each year.

Yet many store cards carry annual percentage rates (APRs) double those of standard credit cards – a massive 25-30% APR and MoneyExpert estimates that 64% of credit cards out there offer some kind of 0% deal on purchases.

The hard facts

If you can’t quite picture what all this means in terms of hard cash, consider this:

Moneyfacts has calculated that the average APR of a store card is 24.3%. Say this store card had an introductory offer of 10% off your first purchase. If you spent £100, you would get a £10 discount.

However, if you only paid the minimum repayment each month on that debt, you’d end up paying £15.85 in interest over a year – £5.85 more than your original saving.

All the store cards we looked at online displayed the typical APR clearly – but very few explained exactly what happens when you only make the minimum repayment each month. Where they did, the information was hidden away in the darker corners of the sites.

Basically store cards are fine to use ONLY IF you are disciplined enough to pay off the balance within the interest-free period (typically between 35-55 days). Otherwise the interest due will soon mount up and you’ll find yourself unable to pay off the outstanding balance each month.

Beat them at their own game

Step 1 – Clear those existing store card debts

If you have existing debts on a store card, help yourself out by transferring them onto a 0% balance transfer card. This will let you pay the debt off, without any interest, over a certain number of months.

The best of the bunch at the moment is the Virgin Money card, which gives you 0% on balance transfers (made within the first 60 days, 2.99% handling fee) for a whopping 20 months. The card also offers 0% on purchases for three months and you’ll get three months interest free on your card purchases, providing you pay your statement balance in full and on time every month.

The Barclaycard Platinum Credit Card also offers 0% balance transfer rate for 22 months, and a 0% interest on purchases for the first three months.

For more information on 0% balance transfer cards, click here.

Step 2 – Make the most of the good bits

When you’re considering a new store card, take a good look at what you’re going to get. Have a look at our comparison table to see who offers the best deals for you.

Remember, unless you’re absolutely certain you’ll pay the balance off each month, don’t go anywhere near them.

Make the most of any introductory offers by waiting to use your 10% discount on something you really want – in other words something more special and expensive than that t-shirt you fancy!

And don’t be seduced into buying something just for the sake of getting the discount.

Store Card Comparison

	APR	Benefits
Burton	29.9%	10% off online all year round.
Debenhams	19.9%	10% off first in-store purchase, 10% off in-store cafes and restaurants, cardholder events and free gifts.
Dorothy Perkins	29.9%	10% off purchases for first three months, 10% off food and drinks at any BHS cafe, exclusive cardholder discount reward days.
Evans	29.9%	£5 reward voucher included in your first statement and reward points system with double points for the first three months.
Miss Selfridge	29.9%	10% off first purchase, Cardholder offers and free gifts.
Topshop	19.9%	Free standard delivery voucher after opening a Card online (Voucher redeemable instore only, on a spend of £60 or more in one transaction), £5 Topshop voucher in your second statement when you spend £50 or more, seasonal offers including 10% off sale prices during the first week of the summer and Christmas sales
Wallis	29.9%	10% off your first purchase when you spend £50 or more. Cardholder events and prize draws, Unspecified discounts. The card can also be used in Burton, Dorothy Perkins, Evans, Miss Selfridge, Topshop, Topman, Outfit and Bhs.

Step 3 – Use the benefits without feeling the downside

If there are exclusive cardholder events and offers, you can keep the card especially for them. As long as you’re careful, you can benefit from about 50 days of interest-free credit.

Step 4 – If you don’t trust yourself, use an alternative

Instead of using a store card, consider a credit card that gives you rewards. These are actual credit cards that will give you cashback, points or Avios when you use them.

They are great for people who always pay back their credit card bill each month before the interest period kicks in because it means they’re getting something back for their spending. However, if you don’t think you can pay the debt off each month you’re better off going for the card with the cheapest interest rate you can find to keep your bills down.

• Best cashback card: The Capital One World MasterCard offers 5% cashback for the first 3 months with a maximum cashback of £100, and then varying cashback depending on how much you use the card, up to a maximum of 1.25%.  Interest is paid annually in January and there is no fee. APR is set at 19.9%.
• Best card with rewards: British Airways are running an Avios scheme with American Express. You get 9,000 Avios (the new term for air miles points) although you do have to spend £1,000 in the first three months of your card membership. After that you get one Avios for ‘virtually’ every £1 you spend. There’s no annual fee and the APR is 19.9%. Signing up for a British Airways American Express Credit Card also means you are automatically enrolled into the British Airways frequent flyer program, the Executive Club. This means you get perks such as priority on flight waiting lists.

What you must remember

Remember that while store cards are a good way of qualifying for offers and discounts, borrowing on them is a total rip-off and you should NEVER, EVER do it!

Useful links

• Experian
• Virgin Money card
• Barclaycard One Pulse Visa with Cashback
• American Express Platinum MoneyBack Credit Card
• BA scheme with American Express
• John Lewis and Waitrose partnership MasterCard
• Marks and Spencer MasterCard
• Compare 0% credit cards on the Moneymagpie comparison pages to find one that suits you.