We’ve already shared several blogs about the importance of a good credit score. You need a decent credit score to qualify for a home loan, a personal loan and most forms of credit, since it indicates to credit providers that you are a responsible borrower. A good credit score will also allow lenders to offer you lower interest rates. And when you want to enter a financial agreement, like renting from a landlord, a good credit score gives the other party confidence that you pay your debts.

But it can pose a bit of a puzzle – if you need a good credit score to qualify for credit, how do you start building a credit score when you don’t have any credit yet? The answer is to start small, taking on affordable amounts of short-term credit to start building a well-managed credit record. If you manage them responsibly, retail store accounts and credit cards can be of great help.
 

Retail store accounts

Clothing stores have offered accounts for decades, and they also pioneered the use of store cards that allow you purchase items today and pay them off later. These days, most retail chains offer store cards that often come with loyalty programmes and rewards, so whether you’re buying clothes, groceries or household appliances, you can use your card instead of cash and pay off all your shopping once a month.

Unlike most credit cards, you’re generally issued with a store card immediately when you submit an application, so you can start using it right away. Make sure you pay your account every month on time, and you’re on your way to building your credit score.
 

Here are a few benefits of owning a store card:

It’s easy to set up a retail account. Unlike credit cards that require a thorough background check before the financial services provider can approve your application, it’s easier to apply for and set up a retail store account. It’s also unlikely that you’ll be charged an annual fee.

The application process is quick. Setting up a store account can often be done at the tills, and approval is usually instantaneous. Depending on the retailer, you may also be able to apply for an account and card online.

Retailers offer members-only rewards. Owning a store card enables you to qualify for exclusive cardholder promotions and other offers.

However, retail store cards also have some potential disadvantages:

Store accounts tie you to specific retailers. Bear in mind that a retail store card ties you down to that retailer for your credit purchases. It’s no help if they don’t stock the item you need to buy on credit.

Some store cards are not association branded (Visa, MasterCard or American Express). You can only make purchases from the store, not cash withdrawals.

Store accounts can make your purchases cost more. Many retail stores offer an interest-free grace period on accounts – if you pay your account in full every month, you aren’t charged interest. However, most will charge interest on a balance owed for longer than 30 days – so if you pay only the minimum amount requested every month, your unpaid balance builds up and starts to attract interest charges.

Store card accounts can attract a rewards membership fee. Your card may be free, but you might need to pay an annual fee to get access to in-store promotions.
 

Credit cards

It’s just as simple and convenient to apply for a credit card – whether you apply at a branch or via the Money app or Online Banking. However, your application may take a little longer to approve than a store card would. The bank will need certain documents to establish your identity, employment status and income in terms of FICA regulations, and they will need to check that you aren’t listed by any credit bureaus for non-payment of debt.

Once your application is approved, however, a credit card offers all the benefits of a store card – including loyalty rewards programmes like Greenbacks – and much more. For a start, you can use a credit card to pay for any emergency expense from any supplier, unlike a store card. And when you’re shopping online, you can’t beat the security and convenience of using your credit card.

Many credit cards come with travel and insurance benefits and offer regular money-saving promotions too, like our Nu Metro movie discounts. And like a store card, if you manage your credit card well, it helps to build a good credit score over time. There are several different credit cards on the market, so you can shop around to find the account that best suits your budget and your needs.

However, a word of warning: like store accounts, credit card balances attract interest after a grace period. So, whether you’re using a store card or a credit card to build your credit profile, you should always try to pay off the full balance every month, to avoid either account costing you more than it needs to.

Tips for finding the right credit card for you

• Shop around to find the best interest rate on a card that suits your needs.
• Keep additional costs, such as account fees and service charges, in mind.
• Look for cards that offer benefits or rewards for good spending behaviour.

Nedbank offers a wide range of credit cards, so you can choose one that suits your finances and lifestyle.