Signed for a 'store credit card'? You may get into a debt trap

A look into what to look out for before using a store credit cards and when to avoid them completely.

Store credit cards like BIG Bazaar card, LifeStyle credit card etc. are good and easy to procure thanks to their easy application and approval process. You can get one easily even when you just make a casual visit to the nearby store and have no proof papers whatsoever with you.

But, beware, they normally charge much higher rate of interest on late payments than the normal credit cards (ones which can be used at any store). We are going to talk about what to look for in these cards and when to avoid them completely.

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Courtesy: Am22Tech.com

What is a store credit card?

A store credit card is a credit card which a particular store issues in collaboration with a bank. These are special purpose cards and can only be used at the attached retailer store.

For example, BIG Bazaar may tie up with ICICI bank and come up with a BIG Bazaar ICICI bank credit card. This card can only be used at BIG Bazaar outlets to make purchases.

You may also earn reward points or get some special discounts when you make purchases using this card. The reward points and discounts are card specific and may or may not be available. Please read the terms and conditions to know more.

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Who is eligible to get a store credit card?

Virtually anybody can get a store credit card. You can find marketing executives asking you to sign up for the store card in a mall or a big retail store. They actaully want anybody and everybody to sign up for it to increase sales.

Since, the card cannot be used at any other store, chances are that if you sign up, you will use the card and their sales will increase.

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What is the problem with store credit cards?

First purchase discount: Well, the problem is not visible at the first go as they offer discounts mostly with your first purchase. But, these discounts normally go off with your next purchase.

Credit history: Another problem is that stores issue the cards without checking your credit history most of the time. They are more eager to bring you on board and hence skip the checks.

This obviously sounds good if you are customer but it is not so good in reality. As a customer, you would almost always apply for a store card as they do not have stringent checks. But do you know that whenever you apply for a store credit card, an entry is made into your personal CIBIL (credit history) with a mention that you applied for the card.

If you apply for a lot fo them in a short space of time, your credit score will drop significantly, making it harder for you to get credit in the near future. It will also increase your total credit dependency in CIBIL report.

Hence, it is recommended that you should NOT apply for each store card that you visit in. It should only be restricted to the ones you actually would use for shopping!

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High interest rate: Do you know that store cards carry a high interest rate of about 25 to 30 per cent, which is much more than a normal credit card? Of course you only need to worry about this interest if you do NOT re-pay the credit card bills within inetrest free period.

But, if you are the one who likes to miss the deadlines, you are definitely going to pay back much more than the discounts you would have enjoyed using the card.

Store cards are for everyone: Even for low disposable income group: There are people who do not have sufficient disposable income to qualify for normal credit cards. But, they are able to get store cards easily.

The store card executives are untrained in financial education, and are simply told to sign people up in return for cash incentives. Thus, those without suitable disposable incomes often find themselves spending on these cards without understanding how to manage them.

This results in racking up expensive, ill-afforded debts in the process.

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Tied to a single store: Store cards are specific to a particular retailer and hence can't be used at other places. How many such cards can you store in one wallet? So, it is always wise to get only the ones which you use regularly and keep a normal credit card for all other purchases.

Any benefits of store credit cards?

Yes... they are good if you use them wisely and for your own benefit rather than helping the store earn exorbitant interest on your purchases!

Follow these simple practices to make the most of them and avoid their trap:

Pay back on time, everytime: Creadit cards are always on your side and work in your favour only if re-pay the FULL due amount within the interest free period. If you miss even a single day, the card immediately swaps the winner and starts peforming in favour of the bank/store and you pay high interest.

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Continuous discount and reward points: Look out for a store card that offers discounts on repeat purchases and not just the first one. A card which offers reward points on all transactions.

You can stack up reward points with each purchase and then redeem them for some free products.

Membership benefits: There are some store cards that offer loyalty points and membership offers too. The store card may help you get an invite to special member only invitations.

Conclusion

Using credit cards and that too store cards is good if you can manage the money cycle efficiently. You should be well versed with the terms and conditions along with discounts and offers that are available to you to get the maximum benefit.

Avoid applying for each store card that you visit as it degrades your credit score silently.