How To Manage Your Store Card
Many major outlets offer store cards. These provide an easy way for consumers to defer payment for purchases. Store cards are promoted over public address systems in shops and by shop assistants at checkouts. So it's no surprise that there are more than 14 million store cards accounts in the UK.
Store cards offer many incentives for shoppers. Some offer a 10% discount on the day's purchases. This can be attractive when buying a large item. Others offer discount vouchers for large amounts.
What many people don't know is that store cards can be a costly way of getting credit.
It's Just Like A Credit Card, Or Is It?
Store cards and credit cards have several features in common. Both allow consumers to defer payment for good. Both charge interest. Both offer incentives. However, there are significant differences in the way each type of card is run.
While interest rates on credit cards start at around 8% and peak at just over 20%, store card interest rates are much higher. Typical store card interest rates are around 30%. The Competition Commission has suggested that store cards with a rate over 25% should carry information to warn consumers about the interest they will have to pay.
Credit cards usually have an interest free period which can be as much as 56 days. This allows people to pay off the outstanding balance without paying interest. Store cards do not usually have an interest free period. This means that the minute shoppers pay for a purchase with a store card it starts accruing interest. This can be very costly for those who don't clear balances every month.
Store Card Overcharging
A recent Competition Commission review suggested that store cards overcharge British consumers by £100 million a year due to the high interest rates. Late payment fees are also high on store cards. And payment protection insurance is expensive too.
Effective Store Card Management
The Competition Commission has asked store card issuers to improve their information for consumers and to bring their interest rates down. In the mean time, there are several strategies consumers can use to manage their store cards effectively.
- To manage store cards effectively, consumers need to read the fine print. This gives details of the annual percentage rate of interest. There are some store cards that have interest rates in line with those of normal credit cards. It is worth looking around for one of these.
- Check to see if there is an interest free period and what fee is charged for late payments. Make payments on time to avoid incurring this fee.
- Pay off the outstanding balance within a month if possible. This will keep interest payments low.
Although store cards can end up costing a lot, they don't have to if consumers follow these tips. If the store card rates still seem too high, then it may be time to consider another credit option, such as a regular credit card.
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