There are many advantages to having a store card, but you need financial discipline to use it responsibly. JustMoney.co.za, a site that helps educate South Africans to make good money choices, gives 10 tips on how to use store credit to your advantage, and comply with the terms of your agreement.
Store cards benefits
Store cards not only enable you to buy items as you need them – and, depending on the option chosen, potentially at zero interest – but they also offer benefits such as access to partner stores, membership to loyalty clubs, and exclusive benefits that are not extended to the general public, says Shafeeka Anthony, Marketing Manager of JustMoney.
These advantages include the following:
Convenience: The application process is usually easy, and using your card to make purchases is a simple swipe away.
Rewards: Discounts, “sneak previews”, and VIP sales events for cardholders can be a great help if you genuinely need the items purchased.
Building your credit score: Making on-time payments and keeping your balance low can help build your credit score over time. Once you’re creditworthy, you’ll be better positioned to obtain preferential interest rates when borrowing.
Special financing offers: Some store cards offer 0% interest for a certain period of time on purchases made with your card.
Access to a variety of stores: If the store that issued your card is affiliated with other stores, your credit account may also apply to these. The Truworths card, for example, provides access to Truworths, Truworths Man, Truworths Emporium, Uzzi, Office London, Earthaddict, Earthchild, Naartjie and Loads of Living.
It’s important to understand the terms and conditions before signing up for a store card, notes Anthony. “Weigh up the benefits versus the potential costs. It’s very easy to find yourself in a downward debt spiral if you don’t manage a store card responsibly,” she says.
JustMoney offers the following 10 tips to handle a store card, and credit in general, optimally.
- Keep track of your spending: Make a list of items you really need, and budget accordingly. As a rule of thumb, you should spend less than 30% of your credit limit.
- Opt for the interest-free payment period: Most store accounts offer a six-month interest-free payment plan and a 12-month interest-bearing option. Avoid paying interest if possible, as store card interest rates are high.
- Avoid late payment fees: Interest and fees are applied if an account is in arrears. These fees accrue for telephone calls, letters, emails and SMS messages to remind you of outstanding payments. Late payments can lead to your account limit being reduced, and affect your credit score.
- Don’t increase your credit limit: To protect you, and to mitigate their risk, store card providers will assign you a credit limit based on certain criteria. These include your income and expenses, and your credit score, which indicates your previous credit behaviour. Avoid the temptation to increase your credit limit, as this could tempt you to spend more.
- Pick a payment date that works for you: When paying by debit order, you will likely be able to stipulate your preferred processing date. Schedule your store card payment date to coincide with your salary receipts.
- Never skip a payment: If you can’t afford to settle your store account in full, at least make the minimum payment. Missing payments on your store card reflects poorly on your credit history, and this will affect how much credit you qualify for in the future.
- Avoid using multiple store cards: Multiple store cards can make it difficult to keep track of the debt you have accrued. It can also lead you to take on more debt than you can afford.
- Never lend your store card: Store card usage is not transferable, meaning you’re the only person allowed to use your card. Lending your card to someone else may be risky, as the borrower could overspend in your name.
- Check your credit report regularly: In order to take out a loan, or any other form of credit, you will need a good credit score. Therefore, it’s important to regularly check your credit report and to take active steps, if needed, to improve it.
- Gain access to your free credit report with JustMoney.
- Seek professional help if debt becomes a problem: If you are struggling to stay on top of your repayments, it’s easy to feel overwhelmed, but being proactive is the wisest course of action. It’s easier to remedy a situation that’s not yet out of control. There are options such as debt counselling, which repackages multiple debts into a single, affordable monthly repayment.
“Only use your store card for needs, not wants,” concludes Anthony. “Setting a budget – and sticking to it – will prevent impulse buying, which could compromise your ability to pay off your store card and service other debts.”
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