There are many advantages to a store card, but you need financial discipline to use it responsibly.
We consider how you can use store credit to your advantage, and comply with the terms and conditions of your store card agreement.
Tip: Find out more about a credit facility that allows you to shop safely at 4,500 online stores.
Bag the benefits, and avoid the risks
Beyond allowing you to buy items as you need them, store cards offer multiple benefits, such as access to partner stores, membership to loyalty clubs, and exclusive benefits that are not extended to the general public.
However, it’s tempting to use them repeatedly because they offer revolving credit, explains Ans Gerber, head of data insights at credit reporting service Experian.
“The key to using revolving credit wisely is to remember that your card limit is not a spending target,” she says.
Understand the terms and conditions
Interest rates
Interest is calculated daily using a simple formula, where the balance owing on the account is divided by the number of days in the year, and multiplied by the applicable interest rate in accordance with your credit agreement.
“The national credit act stipulates the maximum interest rate that may be charged relative to the repo rate (the rate at which the South African Reserve Bank lends to commercial banks),” explains a Truworths representative. “For store cards, this is currently 21.75%.”
Most store accounts offer a six-month interest-free period, in addition to a 12-month interest-bearing period. It’s best to opt for the interest-free period wherever possible.
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.
Rewards and bonuses
Early sale notifications, sales discounts, and member-only promotional offers are among the rewards on offer, to recompense you for choosing one store, or chain of stores, above another.
The Truworths card, for example, provides you with access to a variety of stores, including Truworths, Truworths Man, Truworths Emporium, Uzzi, Office London, Earthaddict, Earthchild, Naartjie and Loads of Living.
Credit limit
To protect you, and to mitigate their risk, store card providers will assign you a credit limit based on certain criteria, including your income and expenses, and your credit score, which indicates your previous credit behaviour.
“Avoid the temptation to increase your credit limit,” recommends financial adviser Sylvia Walker. “Unnecessary credit gives you an excuse to spend more, which you may not be able to resist.”
Tips for responsible use of your store card
Never skip a payment
If you can’t afford to settle your store account in full, at least make the minimum payment, Gerber advises.
“Missing payments on your store card reflects poorly on your credit history, and has a negative impact on your credit score. This will affect how much credit you qualify for in future,” she says.
Pay the full instalment and any arrears owing
Make sure you pay the amount you owe in full on or before the due date each month. You should diarise this.
“Try to pay off the amount owing in no more than three instalments, which will save you interest where applicable,” says Walker. “Instead of just looking at the minimum payment required, be aware of your total debt and be proactive about paying it off.”
Pick a payment date that works for you
When paying by debit order, you will more than likely be able to stipulate your preferred processing date.
“If you know you always receive your salary payment on the 25th of the month, make sure your store card payment date falls shortly after this,” Gerber recommends.
Set a budget
Setting a budget – and sticking to it – will prevent impulse buying, which could compromise your ability to service other debts, pay utility bills, or save.
“Avoid using your store card for irresponsible spending and only use it for needs, not wants,” says Gerber. “If you plan your credit budget properly, you should always be able to pay your bills and maintain a healthy credit score.”
Keep track of your spending
Keeping track of your spending will give you a clear idea of how much you owe and when you need to pay. You should, as a rule of thumb, spend less than 30% of your credit limit.
Avoid using multiple store cards
Avoid owning and using multiple credit cards, Gerber advises.
“Using multiple store accounts is dangerous because it makes keeping tabs on the amount outstanding more difficult,” says Gerber. “It can also lead you to take on more debt than you can afford.”
Never lend your store card to anyone else
As your account terms and conditions will indicate, store card usage is not transferable, meaning you’re the only person allowed to use your card. Lending your card to someone else would also constitute an unacceptable overspending risk.
Maximise the use of your store card
Make the most of rewards and discounts
Reward discounts and specials can be of great benefit if you genuinely need the items. Many retailers offer “sneak previews” and exclusive sales events to their cardholders.
Avoid store card debt
Restrict your store card usage to affordable items you know you can pay off quickly. Make a list of items you really need, and budget accordingly.
If you have financial goals, write them down and look them over daily. Remind yourself that unplanned spending will get you into debt instead of helping you to save for a significant item, such as a holiday.
Pay more than the minimum due
Pay more than the minimum instalment if you can, as this will expedite repayment of your debt. Walker suggests paying by EFT for this purpose.
“A debit order will just cover the minimum due each month, but an EFT allows you to pay more if you wish, putting you in control of your spending.”
Manage your credit utilisation ratio
Lenders are interested in how you use credit because this tells them how much of a risk you pose when you borrow money. They will examine your spending habits, and how often you reach your limit.
To calculate your credit utilisation ratio, divide your outstanding balance by your credit limit and multiply the figure by 100. The resulting percentage will tell lenders if you’re relying too heavily on credit. The lower the percentage, the better. You should aim to use no more than 30% of the credit available.
Check your credit report
If you don’t have a credit record, a store card, responsibly used, can help you build a good credit score. If you’re creditworthy, you’ll be able to borrow from lenders such as banks at a preferential interest rate.
You should also check your credit report regularly. It’s important, Gerber notes, to ensure the information is accurate, and, if it isn’t, to dispute it.
Seek professional help where necessary
If you are struggling to stay on top of your debt, it may help to consider debt consolidation, which repackages multiple debts into a single, affordable monthly repayment amount.
It’s easy to be overwhelmed and not seek help, but being proactive is the wisest course of action. It’s easier to remedy a situation that’s not yet out of control.
Tip: Struggling to settle your credit card and other debts? Consider debt consolidation as a solution.