Store Cards. They seem to offer you plenty; interest free purchases, loyalty points discounts & saving a lot of money. This is true if you play them at their own game but there are many pit falls. It sounds odd to say but proper credit cards are actually less risk in a lot of cases (but don’t get one of those either!)
After looking around it turns out that even if there are many stores offering cards there are only a couple of banks that sit behind them. Its big business. They are there, waiting for you to get into trouble, and when you do, its going to hurt.
One thing that really bugs us is that they are allowed to advertise an APR (the amount of interest you’ll pay) that may not be what you actually get. A quick google search shows that on average the rate offered is between 16.9% and 19.9%, however when digging into the fine print many can actually rise to 29.9% & some don’t even let you see the maximum possible rate until your about to sign up. You could be offered the much higher rate depending on your credit score.
You may get great offers but unless you are paying off the balance in the interest free period of the purchase, usually between 30 and 56 days, your going to get hit by that interest rate. The minimum monthly payment is set low, trying to entice you into keeping the balance on the card as that’s where the profit is for the stores. If you owe £200 the minimum payment may be as little as £8 per month. The next month you pay off £8 again on the balance of £198. If you fail to make a payment it’s really going to make the store happy, £24 in late fees plus interest & 1% of the existing balance looks to be the standard. Send them a cheque that bounces and that’s another £25. The ideal customer is one that makes semi regular minimum payments missing the odd one as they are the gift that keeps on giving. Weighed up against the saving you think you might make, pretty soon any initial discount can quickly disappear. If you get to a position where you can’t make repayments they won’t hesitate to pass you to a debt collection agency which will mean huge costs added in fees to the bailiff, and possibly county court judgements. You’ll have to pay off everything, potentially including bailiff and court fees. This will be a small amount every month but your credit score will be destroyed.
The research we did also showed that it’s possible to lose money for being in credit. Some stores will charge you up to £10 a quarter if your card is in credit for 3 consecutive months. There are also charges on some balance transfers, so if you move a balance from one card to another you may incur a charge. The average seems to be around 5%. Some cards will allow cash withdrawals; again there’s a charge up to 3% in some cases, so getting £100 in cash actually may cost £103. You may be offered the chance to buy foreign currency on your card. Great, you think. But the exchange rate may not be the best you can get, and guess what? On the money you order you may be charged (up to 3% is common). Oh and there’s another possible charge. Many stores will charge you up to £3 for a paper copy of any statements you need if you want to dispute anything with them.
At every turn theres a catch to get more money out of you. Store Cards are such a dangerous game, the odds are stacked against you, and the system is set up to make more money out of you.
We at FW say yes, add to your wardrobe but be prudent and stick to what you can afford. We’ll be posting budget items on a regular basis and we’ll also be discussing great ways to buy on a or save money on items over the next few months.