Store cards work and feel very much like credit cards, except that while credit cards can be used anywhere, store cards can only be used in a specific store or store group. They're often confused with loyalty cards (where you accrue points for spending), yet with store cards you can ‘pay and borrow'; with loyalty cards, you just gather points.
It's also important not to confuse store cards with store-linked credit cards; Tesco, Sainsbury, Asda, John Lewis, Marks & Spencer all have these. These are a different breed and can be used anywhere, not just in the named store.
Why are they bad?
Their exorbitant rates. Of the 31 major store cards on the market, 20 of them charge over 25% interest. This is a huge amount, massively more than a standard, never mind competitive, credit card.
They're commonly mis-sold. These cards are often pushed on us by untrained shop staff, who have little idea of the impact and associated dangers of such a high interest rate card. They're simply told to flog them and are usually incentivised for signing people up.
They're targeted at the young. This is the first piece of credit many young people get. Store card providers must love debt illiterate youngsters: they're an easy target and often spend on these cards without understanding how to manage them, racking up expensive, ill-afforded debts.
They hide the fact this is debt. The common sell on the card is a 10% introductory discount, which sells people into debt whilst never explaining the consequences.
They charge us more and get our business. With these cards the stores guarantee that we spend on them in their shops. Yet to do this they charge us more even than a credit card. Logic would dictate it should be cheaper, as it is guaranteeing them custom and more spending in store.
Golden Rule of Store Cards – Never, ever use a store card to borrow on. If for what ever reason you do, pay it off in full.