You have probably seen store cards advertised by certain retailers, as well credit cards branded to big-name supermarkets or chains – but what is the difference? Using a store card is very different to using a credit card because a store card can only be used in a few places at most, while a credit card – even if it is branded to a certain shop – can be used almost anywhere. In this article we will help you understand what a store card is, how it works and whether it is something to add to your wallet or avoid.
What is a store card?
A store card is a type of credit card that can only be used on purchases from the store, chain of stores or group that provides the card. The purchases you make will build up as a balance on the card, which you will need to pay off. This can be done either before the interest-free period ends – such as at the end of the month – or after interest charges have been applied. For many store cards, the purchase rate is higher than on low-interest credit cards.
The card itself is usually branded with the logo of that store, chain or group and you will likely be able to get cardholder-exclusive discounts and special offers. Because of this, you may have been offered the chance to sign up for a store card at the checkout of a particular store.
It is important not to mix up store cards with loyalty cards – such as a Tesco Clubcard or Nectar – or credit cards branded to supermarkets – such as a Sainsbury’s Bank credit card or M&S Bank credit card. Loyalty cards allow you to build up points through shopping with a certain retailer or group of retailers and offer exclusive discounts. The points you accumulate can later be exchanged for money-off vouchers. Store-branded credit cards are just like any other credit card and can be used anywhere that credit card is accepted, not limited to shopping with that brand like a store card would be. These credit cards are often linked to rewards schemes, but they are not store cards.
What is the difference between a store card and a credit card?
A store card is still a type of credit card and shares some basic similarities in how a balance is built up through spending and needs to be paid off. The main difference between a store card and a standard credit card is where it can be used. A credit card can be used with any retailer that accepts payments from your credit card issuer – such as Visa, Mastercard or American Express – while a store card can only be used at the store, group or chain of stores that provides the card.
Retailers usually offer a line of credit through a store card in order to encourage you to shop with them, though the credit limit is likely to be much lower than on a standard credit card. In return, you will receive special offers or discounts on your spending that are exclusive to store cardholders. This could be an ongoing percentage discount, free shipping, free returns or regular money-off vouchers.
One key similarity that store cards share with credit cards is the requirement to run a credit check on applicants. This means that, like when you apply for a credit card, your application will leave a footprint on your credit file that future potential lenders will be able to see. You will also need to be over 18 to apply, as with a credit card.
Store card charges and fees
You can expect the purchase rate on a store card to be higher than on a low-interest credit card. You will see store cards advertised with a representative APR, which is the estimated percentage cost of using the card in a year. This is the best figure to compare different store cards and credit cards by, though it may not be the exact interest rate you end up with. We explain how this figure works in our article ‘What is representative APR?’.
Whatever the APR rate on your store card, you will not face any interest charges if you pay off the balance within a certain period. This could be when you get your bill at the end of the month or longer if the card comes with a 0% offer period. Interest-free periods on store cards are unlikely to be as long as with 0% purchase credit cards, which you can check out in our article ‘Compare the Best 0% purchase credit cards’.
Like with a standard credit card, your store card statement will show the minimum payment required, but it will be expensive and slow to try and clear your balance by paying as little as possible each month. We explain why in our article ‘What is the minimum payment on a credit card?’. Store cards are unlikely to charge an annual fee, but there will be late repayment charges if you fail to make the minimum payment on time. This will also leave a mark on your credit file that could make future borrowing more difficult.
Setting up a direct debit to cover the full amount each month will ensure you do not have to pay any interest on your spending. Interest charges will quickly cancel out any of the vouchers, perks or discounts you get from having the card if you are struggling to pay off your balance.
Store card discounts and offers
The main selling point of a store card is the discounts, perks and offers you will get from being a cardholder. This will usually involve a money-off voucher for your first purchase, an ongoing percentage discount and perks such as early access to sales, free delivery or free returns. Some cards will not offer deals within a certain period of your first purchase in order to give you the chance to cancel the card within a 14-day cooling-off period.
Using these offers carefully to maximise your savings could make a big difference to how much money you spend at that retailer, but it can be easy to be tempted into spending more money than you normally would, thereby cancelling out any cardholder discounts. The point of offering the benefits that come with the card is to encourage loyalty to that retailer, which can mean you miss out on cheaper options elsewhere.
Keep in mind that even the best store cards are unlikely to offer enough discounts to balance out the cost of paying interest or late repayment fees.
What will happen if I miss a payment on a store card?
Missing a payment on a store card is like missing a payment on a regular credit card – you will be charged a late payment fee, you will likely lose any interest-free offer and there will be a mark left on your credit file. This mark can be seen by other lenders for up to six years and may make borrowing more difficult in the future.
If you think you may struggle to make your next minimum payment, you should contact your store card provider, as it may agree to a revised repayment plan. You can also get free debt advice from one of the independent organisations in our ‘Where to get free debt advice’ article.
Pros and cons of store cards
There are a few key advantages and disadvantages to using a store card, which we have summarised below:
Pros of store cards
- Exclusive discounts, perks and vouchers from your favourite store, brand or group
- Free delivery with purchases from some retailers
- Early access to sales
- Generally easier to get approved for when compared to standard credit cards
- Usually no annual fee
- Responsible spending and repaying in full at the end of the month will help build up your credit score
Cons of store cards
- You can only use the card with a particular store, chain or group
- There are higher interest charges – if you don’t clear your balance in full – than on standard low-interest credit cards
- Your credit limit may be low compared to standard credit cards
- The discounts and offers may tempt you to overspend or miss better offers elsewhere
Alternatives to store cards
While many store cards will offer exclusive discounts, perks and benefits to cardholders, you can get most of the benefits of a store card – plus a few more – by using or combining alternative options. These include:
- Loyalty cards - Using a brand’s loyalty scheme in conjunction with credit card, debit card or cash will mean you earn points on your purchases that can be put towards money-off vouchers. Some schemes also offer exclusive discounts.
- Rewards credit cards - Spending with a rewards credit card can earn you points, but if you are able to match a branded card up with the relevant retailer you can often earn points at a faster rate. For example, you will earn points five-times faster by using the John Lewis Partnership Credit Card in John Lewis or Waitrose compared to using it anywhere else. Check out our article ‘Compare the best rewards credit cards in the UK’ for more details.
- 0% credit cards - The best 0% purchase credit cards will offer a longer interest-free repayment period than most store cards, giving you the opportunity to clear your balance more steadily. If you plan to spread the cost of a purchase, it is likely to be a better option than using a store card. You could combine a 0% credit card with a loyalty card or pick an option that also includes reward points. The top deals can be found oin our article ‘Compare the Best 0% purchase credit cards’.
How to find out which credit card is best for you
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