Beware of the Store card

An Office of Fair Trading report has strongly criticised retailers over the way they run their store cards.

The OFT began the investigation after being taken to task by a committee of MPs for failing to do enough to protect consumers.

More than 20 million store cards have been taken out, with more than £4bn spent on them each year. But interest on store cards runs at about 30 per cent, one of the most expensive ways to borrow.

The Treasury Select Committee accused companies offering store cards of "highway robbery" because of the high interest rates they charged.

It said the cards, which in some cases charged interest rates which were more than eight-and-a-half times higher than the Bank of England base rate, were "fleecing customers".

The Treasury Select Committee has said there is evidence competition is not working properly, as most cards charge very similar interest rates. The committee also accused companies of "running a cosy cartel" by charging broadly similar rates. Store cards can offer a good deal in discounts on your first purchase, but if you have one here are a few tips to help you keep them under control

• Store cards are credit, the same as a loan or credit card, only they usually charge more. So treat them the same as you would with your other borrowings.

• Be selective with what you buy on your store card, use it for special purchases, not for everyday use.

• Try to pay off your balance in full every month, to avoid punitive interest.

• If you can’t pay off your balance in full, stop spending on your store card until you can.

• If you need to buy from the retailer you have the store card from, make cash purchases if you can't pay your balance off in full.

• Remember every time you don’t clear your balance not only will you be paying high interest you’ll be building up your debt levels and possibly storing problems for the future.