It happens all the time. You go into one of your favourite shops and hear the offer over the public address system: 'An extra 10% off today if you apply for one of our store cards.' This seems like a good idea for people who shop regularly in a particular place but there are a number of reasons to be careful about applying for store cards.
When Is A Store Card Not A Store Card?
First of all, the name 'store card' is misleading. It makes them sound friendly. But store cards are another form of credit card. Like credit cards, people can use store cards to defer payment for purchases. Like credit cards, store cards charge interest on uncleared balances. And like credit cards, people have to apply for them.
Although it can be tempting to have a store card for each place you shop in, people should avoid this temptation. Every store card application will become part of your credit history. People who make more than three applications within a seven month period are likely to be turned down for some cards. This will adversely affect their credit rating.
Store Card Interest Rates
A key difference between store cards and credit cards is the interest-free period. While credit cards typically have interest-free periods of up to 56 days, many store cards have none. People pay interest on the debt from the day it goes on the card.
What is worse, the interest rates on most store cards are very high. The Competition Commission recently said that British consumers were being overcharged by £100 million a year due to the high interest rates. In fact, the Commission suggested that store cards should carry a 'wealth warning'.
Interest rates on normal credit cards typically range between 8% and 20%. In contrast, store card interest rates are usually around 30%. This makes a tremendous difference when paying back a debt.
Other Store Card Fees
Store cards also charge high late payment fees, making them very expensive for consumers. And the payment protection insurance offered by many cards may be higher than that charged on regular credit cards.
Not all store cards fall into this category. There are some retail outlets that offer cards with similar rates to regular credit cards. Store cards that are badged by the retail outlet but issued by a bank may also have competitive interest rates.
Getting The Best From Store Cards
With high interest rates and low interest free periods, it is easy for consumers to pay over the odds for store card credit. To avoid this, it's best to:
- Read the fine print to see what rate of interest applies to the card. This will be listed under the heading 'typical APR'
- Check whether there is an interest free period
- Pay off the outstanding balance within a month
Another option is to avoid the store card and use another credit card with a better interest rate.
Joe Kenny writes for the Card Guide, a UK based
credit cards site, visit today for introductory
balance transfers and start clearing credit card debt today.
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http://www.cardguide.co.uk/
