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Is it ever worth borrowing with a store card?
We’ve all heard the words “would you like to get a 10% discount today by opening a store card?” when standing at the checkout of our favourite shop. So many high street retailers offer one, and they seem to come with lots of benefits, like money off or points. So, is it worth taking one out, and can it have an impact on your credit history?
Store cards can be a tricky subject, and while they do offer some benefits, as with all forms of credit if you don’t use them correctly your finances could suffer – and you may even still be feeling the impact from this a few years down the line.
The risk in your wallet
It can be hard to resist the offer of a store card when you reach the till. The promise of slashing your bill by 10% or more is especially tempting, and then there are all the other offers, which might include free food and drink in the shop’s restaurant, free delivery when ordering online, rewards points or even invitations to special events. In fact, when seen like this store cards can be pretty hard to say no to.
However, the problem comes when the bills start rolling in and you see how much you’re being charged for interest. If you don’t clear your balance immediately then interest will be added to what you owe, and store cards can be a relatively expensive way to borrow. As a result you might end up paying back more than you originally planned to spend – even when your discount is included.
Beware the danger
Store cards are a form of credit, and as with any borrowing they need to be used responsibly if you want to reap their benefits and avoid their pitfalls. This means paying your store card bill as soon as it arrives – and if you want to get the most out of them you should pay off your balance immediately and in full.
Failure to do this means you’ll have to pay interest. And if you don’t keep on top of your payments, the money you owe can quickly add up to an unmanageable amount.
What about my credit history?
Whatever type of borrowing you’re considering, whether it’s a credit card, loan or mortgage, we always advise you avoid applying for several in a short space of time, as this may make you look desperate to get your hands on finance when the creditors you’ve applied to conduct their own credit checks. The same applies to store cards – opening a few of them during the course of one shopping trip could raise a red flag to lenders.
If you start to pay late, or miss payments, or if you repay less than the monthly minimum payment, this too will affect your credit history. In fact, as with any borrowing, missed or late payments will leave a mark on your credit history that remains there for several years. This will definitely have an impact on whether or not you’re approved by certain lenders – and if you plan to get a mortgage one day you could end up heartily regretting opening a troublesome store card when all you went in for was a new pair of jeans.
Is it worth it?
When you consider the risks, it’s easy to dismiss the idea of opening a store card altogether. And if you prefer to play it safe, this isn’t a bad plan - after all, if you don’t have the money for the purchase you’re making, why are you making it?
However, there is a way to use your store card to your advantage – providing you have the funds to do so. After taking advantage of any offers and discounts, pay off the resulting balance before the date listed on the statement – you may be able to set up a Direct Debit to do this, which should help ensure you never miss a payment. Most store cards come with an initial interest-free period, so by clearing the balance as soon as you’re able to you’ll enjoy the benefit of the discount while dodging the interest.
Used responsibly, store cards could also have a positive impact on your credit history by showing that you only use it to pay for what you can afford, and you pay it back promptly. Just remember to close your account once you stop using the card.
Weigh up the pros and cons against your own spending behaviour and next time a retailer waves a store card in your face when you get to the checkout you’ll be able to make the right decision for you.