Look out for hidden extras on your store card

A store card can seem like a sensible way to save money at a shop you use regularly. Unless you are meticulous about paying off your balance though, you might find that the charges are adding up. For some, these cards can end up costing them more, rather than providing discounts.

What's the catch?

Shops are keen to get customers to sign up to their store card schemes. Often they offer inducements like cash back on an initial purchase, or special events or savings for card-holders. There has been some concern about the ethics of this practice, and from March 2012 it will be illegal to offer incentives to take out store credit.

Store cards are branded, but are usually issued by major banks or building societies. For example, cards issued by Burton, Debenhams, Dorothy Perkins, House of Fraser, Laura Ashley and Miss Selfridge are all provided by Santander, so effectively you are applying for a Santander credit card.

The difference between a store card and a credit card is usually in the APR (annual percentage rate) interest you pay on your borrowing. This differs according to the card, but in general store cards have higher interest charges.

Store cards have been criticised because they offer easy credit to people who might not pass the stricter assessments for a credit card, and because they can increase levels of debt for those who are not good at balancing their finances.

For those who have a keen eye for financial detail, pay off their balance each month, and like to take advantage of a discount, a store card could be a sensible option.

Read the small print.

Shop sales staff are rarely financial experts, so they are not qualified to offer detailed advice on the pros and cons of a store card. If offered one, by all means take home the paperwork, but study it closely before you commit yourself to a credit arrangement that can lead to debt problems.

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