On Saturday I found myself in one of my favourite high-street stores, killing a bit of time while FruGuy got his hair cut, looking at all the lovely pretty things and generally torturing myself. I’m still trying to go easy on the clothes shopping.
While I was in there, a young woman (who looked hardly a day over 18) approached the till with an armful of clothes, and had the following conversation with the ever-so-friendly shop assistant:
Shop assistant (SA): Hi there. Do you have a [insert store name] loyalty card?
Unwitting shopper (US): No.
SA: Would you like to apply for one? If you sign up today you can use it today to purchase these items and you’ll receive double loyalty points that can be redeemed in-store.
US: [Looking uncertain] How much does it cost?
SA: Nothing until you receive your first statement.
US: [Looking like she’s won the lottery] OK. Yeah, I’ll do that then.
SA: Great. I just need a few details from you…
Five minutes later after giving her details and being submitted to a credit check, the young woman walked out of the store with a bag-load of new clothes that she had not paid a single penny for, along with a brand-spanking new store card with a credit limit of £500. In the place where her pupils used to be were two giant £ signs.
I have to admit that I have fallen prey to this trick in the past, as a fresh-faced girl, eagerly learning the shopaholic ropes. When standing at the till and being told that you can have a bunch of stuff for free (well it certainly seems like that at the time), it can seem like a really great idea, especially if you can’t really afford the stuff you’re about to buy. And that brings me to my tirade.
My big issue with store cards include the following:
1. I really resent the fact that you are allowed to be asked if you would like to take out store cards on the spot like that, because it takes advantage of (primarily) young women who like the idea of getting now, paying later.
2. I suspect that in most stores, shop assistants are given rewards and/or commission for each customer they get to sign-up. That just irks me.
3. The interest rates are stupidly high. The store I was in the rate is 29.9% APR (and I had to look really hard on the website to find that information). If you’re going to use credit you’d be much better off using a regular credit card with a much lower interest rate. Or even better, taking advantage of the interest-free periods offered by many credit card providers and avoiding paying interest at all.
4. They use ‘exclusive benefits’ to make you think you’re getting a great deal. This includes things like loyalty points, exclusive shopping events and discounts. If you’re looking for real rewards for spending, you’d be much better off using a rewards credit card that gives cashback or rewards. As long as you pay the balance in full each month you will pay no interest and can get a much better deal. [Note: I'm not advocating credit card spending, just pointing out there are a lot of better options available than store cards if it's the rewards you're looking for].
5. The minimum monthly repayment is so low on these cards (usually around 1/24th of the credit limit), that if you chose to repay your debt by paying this amount only each month you would be in debt for, roughly… forever. You’ll also end up repaying a lot more interest on the debts overall. And will anyone point this out to you when you’re applying for the credit? Hardly! This is true of most credit cards, but it still annoys me!
6. I don’t think enough emphasis is put on the fact that taking out a store card is entering into a financial agreement. One that comes complete with contracts, bailiffs and bad credit if you don’t play by the rules.
I have no doubt that if you actually use store cards properly, and repay the balance in full each month, you can benefit from the loyalty points, discounts, etc. However, I suspect that store cards are the first step towards serious debt problems for lots of young women in the UK. Almost every store on the high street has their own loyalty card, and with credit limits often around the £500 mark, you can end up in serious financial difficulty if you don’t think through the consequences of racking up large debts on multiple cards. In my opinion it is taking advantage of the shopper’s high we are all slaves to at some point in our lives; and taking out credit should be something that is carefully thought-through, not taken out on a whim because some shop assistant who is acting like your best friend is telling you it’s a great deal.
I know that at the end of the day, it is the responsibility of the customer to only apply for credit that they know they can afford. But there’s also something to be said for responsible lending, and I don’t think on-the-spot store card applications represent this.