Pros and Cons of Supermarket Credit Cards
Did you know that the average UK household spends almost £100 on a weekly food shop?
As a result many supermarkets have introduced store credit cards as a way to reward loyal shoppers via discounts and interest-free period repayment opportunities or balance transfers. Supermarket credit cards are very enticing! However, what are the benefits of using a supermarket credit card over the traditional credit card, and are they really worth it? Furthermore, how do store credit cards affect credit - can they help you build your credit score?
Let’s take a closer look at the credit cards offered by the UK’s two-largest supermarket chains, Tesco and Sainsbury’s, to find out.
Credit Cards to Build Credit?
Before we discuss supermarket credit cards, let’s first figure out whether a credit card is the best tool to help you build your credit. Because a credit card is exactly that - a tool. Truth to be told, using a credit card isn’t too complicated once you become familiar with credit card best practices.
When used responsibly, a credit card can help you build or rebuild your credit; however if used incorrectly, credit cards can do more damage than good. Credit card risks can include:
- Increased interest rates as a result of missed payments.
- Late payment fees, which can add up to be very costly. Even one late payment can decrease your credit score.
- Misunderstanding of complicated and confusing fine-print T&Cs, especially for those of us who don’t live and breathe credit.
Ultimately, if you don’t use a credit card wisely, you can end up in debt and damage your credit score. If your current credit score isn’t strong, you might want to consider:
- Creating a budget and sticking to it
- Setting up direct debit payments for your monthly bills
- Paying off existing debts as soon as possible (Pay off the smallest debt first)
Comparing Sainsbury’s Credit Card vs Tesco Credit Card
So you’re considering a supermarket credit card?
Well, stick around, because we’ve compiled a list of pros and cons of store credit cards belonging to the two largest food store chains in the UK - Sainsbury’s and Tesco. We’ll take a look at how the cards each store offers stack up against each other. Let’s start with the Sainsbury’s card:
Pros of the Sainsbury’s Credit Card
Sainsbury’s, which operates as a part of Sainsbury’s Bank, offers five cards. They’re all quite similar, with the main differences being balance transfer fees and loyalty points. Benefits include:
- 0% interest on balance transfers is offered on three out of the five cards. This can be beneficial to those wanting to pay off debt on old credit and store cards.
- ‘Soft Credit Search’ which allows applicants to check their financial eligibility before officially applying. This is helpful if you’re unsure whether you qualify and don’t want to risk damaging your credit score with a hard credit check.
- All new cards issued by Sainsbury's Bank use the Mastercard payment system. This comes with perks such as worldwide usage, and an extra layer of security. However, you will not accumulate Nectar points on purchases outside of UK Sainsbury’s.
- Rewards, discounts and promotions go without saying.
Cons of the Sainsbury’s Credit Card
- Sainsbury’s credit cards are mostly beneficial to people with good credit and strong credit scores. If you’re building credit or have a poor credit score, Sainsbury’s credit cards probably aren’t the best option.
- Sainsbury’s credit cards remain unavailable to people who are self-employed, so without an employer, the card is out of reach regardless of your credit health.
- Interest-free balance transfers can be dangerous for your credit health. If you’ve opened a supermarket credit card to pay off existing debt, but failed to do so before the end of your introductory period, you might accumulate burdensome debt as a result of increased interest rates.
- Rewards, discounts and promotions can encourage overspending. Making purchases you don’t need just to rack up points isn’t a healthy financial habit. This goes for any supermarket credit card.
So what about the Tesco credit card?
Pros of the Tesco Credit Card
Most of Tesco credit cards’ benefits are similar to Sainsbury’s:
- Soft credit checks allow prospective users to verify their financial eligibility before officially applying for a line of credit.
- Tesco’s card also operates on the Mastercard network, allowing usage across the UK and worldwide.
- Several Tesco credit cards offer a slightly lower APR than Sainsbury’s credit cards.
- Rewards, discounts and promotions go without saying again.
The main difference between Tesco and Sainsbury’s credit cards is that Tesco offers a ‘Foundation Credit Card’ or in other words a credit-builder card. This card offers credit limits as low as £250 and gives users access to their credit score through TransUnion.
Learn more about credit builder cards in this comprehensive guide from Pave.
Cons of the Tesco Credit Card
- The ‘Foundation Credit Card’ has the highest APR of any card offered by Sainsbury’s or Tesco. Charges that aren’t paid on-time can accumulate interest quickly. If you have poor credit to begin with, accumulating more debt is just about the last thing you’d want to do.
- Similarly, if you’ve opened a supermarket credit card to pay off existing debt, but failed to do so before the end of your introductory period, you might accumulate burdensome debt as a result of increased interest rates. Therefore interest-free balance transfers can be dangerous.
- Tesco’s ClubCard points are more limited than Sainsbury’s, which uses the Nectar loyalty scheme.
- Again, rewards, discounts and promotions can encourage overspending. Making purchases you don’t need just to rack up points isn’t a healthy financial habit. This goes for any supermarket credit card.
Is a Supermarket Credit Card Right for You?
Tesco and Sainsbury’s credit cards both have benefits, but they also have certain drawbacks that can harm credit health. So, are they right for you? Well, that depends on several factors:
- What’s your current credit standing? If you have poor credit or no credit, there may be better things you can focus on to build your credit and become financially fit before applying for a new line of credit.
- Are you eligible? Fortunately, both Sainsbury’s and Tesco offer a soft application credit check that allows you to check your financial eligibility before submitting an official application.
- What kind of credit limit do you need, and why? If you need a credit card to cover monthly expenses, you’ll eventually find yourself playing a game of catch-up with payments and ultimately hurting your credit score. You need to build healthy credit and financial habits first.
In the end, the most rewarding credit card is one that you’ve thoroughly vetted and determined to be the best for your credit health and your financial goals. For some people, a store credit card might be just what they need: a card they can use for their weekly food shop, pay off each month, and earn rewarding points. For others, a store credit card might not be the best option and can do more harm than good.
How to Build Your Credit With a Credit Card
Regardless of the type of credit card you decide on, always remember to follow the best credit card practices.
- Use your card regularly, but don’t max out your credit limit. Keep your credit utilisation ratio low. Try to use below 20% of your available limit, meanwhile aiming for about 10% is ideal. By making multiple payments throughout the month, you can spend more than 20% of your limit without ever having a balance over that amount.
- Pay on-time, every time. This can’t be stressed enough - it’s the cardinal rule of building credit. Even if you only end up making the minimum payment, always, always, always pay on-time every billing cycle.
- Finally, stay within your financial means. Treat your credit card like your debit card, and only spend what you can truly afford to spend.
Building Credit to Improve Chances of Success
Building credit can be a long and difficult process but the financial reward is worth the time spent. Fortunately, Pave exists. Pave is an award-winning credit-builder app that actively works with you to help you build your credit score. No hard credit checks required. In addition, Pave will help you keep on top of your finances by giving you personalised credit fixes, bill reminders and much more. Download the app today on the App Store and Google Play, or sign up online.