Be store card savvy to reap rewards
Shoppers who are considering taking out store credit to fund new purchases are being urged not to be tempted by initial discount offers and instead shop around for a better deal which could save them money and earn additional rewards in the long run. Analysis by MoneySupermarket.com, comparing credit and store cards from a number of high street retailers, shows a big difference between the interest rates charges, and the rewards on offer.
The comparison site looked at interest rates, introductory offers and ongoing rewards across a variety of High Street retailer credit and store cards, to calculate where the biggest savings can be made beyond the initial retail offers.
Interest rates on store cards range from 19.9 per cent to 29.9 per cent APR representative, while rates on retailer branded credit cards are on a par with other credit cards at 15.9 - 16.9 per cent APR representative. As a result, someone making £500 worth of purchases on a Burtons or Dorothy Perkins store card at 29.9 per cent representative APR, would accrue £141.07 in interest over the year, if they just paid off the minimum amount each month.
In comparison, many retailer issued credit cards offer consumers a competitive interest free deal or rewards for purchases. The Marks & Spencer Credit Card and the Tesco Clubcard Credit Card both offer cardholders 15 months interest free on purchases, plus ongoing reward points for using the card. Credit cards are also widely accepted around the world, whereas a store card is generally limited to the retailer or group of retailers owned by the same parent company.
Kevin Mountford, head of banking at MoneySupermarket.com said: "Shoppers using a store card to buy now and pay later won't be too surprised that it is a costlier way of paying for purchases; however they may not be aware of the huge savings to be made just by shopping around for other options for their purchases. An interest free purchase card can be a great alternative for people who have a big purchase coming up and need some extra time to pay it off, and the amount saved in interest can be used towards their goods, or to pay off their card. In addition to the promotional offers, many of these cards also offer ongoing rewards, helping maximise your spend. However, shoppers should ensure they pay their balance off before the interest-free period ends and make sure they repay their bill on time, otherwise they will lose the promotional rate."
MoneySupermarket polled its users on their attitudes to store cards and found 36 per cent of people use them. Of this, 60 per cent pay it off each month and a third open a card for the initial discount offered, then don't use the card again. A separate 20 per cent say they are put off store cards as the interest rates are so high.
Many store cards tempt shoppers with introductory discounts or vouchers at point of sale if you sign up for the card. For example, the New Look store card offers 20 per cent discount off the first purchase plus additional cardholder discounts and offers. However, a retailer credit card offers ongoing rewards on all shopping on the card, no matter where you shop. For example, the John Lewis Partnership card offers 1 point for every £1 spent in John Lewis and Waitrose stores and 1 point for every £2 spent elsewhere. Every 500 points earned is worth £5 in John Lewis vouchers.
Kevin Mountford continued: "It's good to see that some store card users are making regular payments on their card each month, meaning they won't be hit by late fees and high interest on repayments. Our findings also show a large number of consumers are lured into using a store card based on the discount offer at the time. Whilst some introductory deals could be worth looking out for, the benefits on offer will often be negated by high interest rates if the card holder cannot afford to repay the balance in full. There are a number of credit cards designed for purchasing that also provide rewards for consumers, such as the Marks and Spencer credit card, so it is worth shopping around and reading the small print to check. Alternative credit cards such as cashback cards can also help people maximise the return on their spending as long as they repay the balance in full.
"While it can be tempting to open a store card just to take advantage of the initial discounts being offered, opening a card does require a credit check and can impact your overall credit score. Taking out a store card and using it responsibly; staying below the credit limit and making regular payments can help improve your rating, so can be suitable for people who don't have a history of using credit. However, use it irresponsibly and it will have a negative impact and could potentially prevent you from getting credit in the future. It is important to consider your options before signing up for any credit product, otherwise that latest fashion accessory could end up costing far more than shown on the label!"
MoneySupermarket has a SmartSearch credit profiling tool to help those looking for the best credit card deals for their circumstances. The tool matches the customer's credit profile against the card they are most likely to be accepted for, but doesn't leave a footprint on their credit file.