[Baltimore Sun] Store credit cards charging record-high interest rates
Read Time:3 Minute, 23 Second
Retail credit cards are charging higher interest rates than ever before, and Bankrate is warning consumers to proceed with caution.
Bankrate’s annual retail credit cards study shows the average interest rate is now 30.45%. That’s up from 28.93% last year, 26.72% two years ago and 24.35% three years ago.
Retail cards on average carry far higher rates than the typical general-use credit card, which is still high at about 21%.
“We’ve been doing it since ’08, and this is the highest average we’ve ever seen for retail cards,” Bankrate Senior Industry Analyst Ted Rossman said.
Retail credit cards often can only be used at the chain’s particular stores, though there are some co-branded cards, which are affiliated with a brand as well as a card network such as Visa or Mastercard and can be used for purchases anywhere.
The highest rates among retail cards included in Bankrate’s report came in at 35.99% and included the Academy Sports + Outdoors Credit Card, Big Lots Credit Card, Burlington Credit Card, Good Sam Rewards Credit Card, Michaels Credit Card, Petco Pay Credit Card and Banter by Piercing Pagoda.
Rossman said customers are usually offered a discount, such as 20% off that day’s purchase at the register if they sign up for a store credit card.
“The consumer-action step is just to beware of what you’re getting into,” he said. “These cards have very high interest rates, and sometimes people feel that they’re just signing up for a free store loyalty program — they don’t realize that that 20% discount comes with a hefty interest rate and a credit check, and it may not be worth it.”
The cards can be big profit centers for the stores, Rossman said.
“Macy’s made half of its total profit from its credit card a couple years ago, according to a Citi analyst,” he said.
Retail cards aren’t as selective about credit quality, so they charge higher rates, he said.
Retail cards rely more heavily on late-fee revenue, which is something that the Consumer Financial Protection Bureau has been cracking down on. So, store card issuers have been raising other fees, including interest rates.
“Sometimes it’s kind of a desperate situation, unfortunately,” Rossman said.
A person might need new tires but doesn’t have the money, and there on the counter is a sign for that store’s credit card.
There are times when retail cards can be helpful.
“One would be if you get a really nice discount off a big initial purchase. You have to pay it off in full for it to be worth it,” Rossman said.
Don’t sign up to save $10 off a $100 purchase, he said.
Another good way to use retail cards is to tap into ongoing rewards as long as you pay in full to avoid the high rates. Store loyalty is key in that one.
Bankrate mentioned that Amazon, Best Buy and Target have cards that offer 5% cash back.
“So, if you’re loyal to the store, you use their card at their store to get a nice discount,” Rossman said. “That’s worth it, again, provided you’re avoiding interest.”
In any retail card scenario, it’s all about paying your balance on the due date every month. But that might prove trickier given the episodic use of some retail cards, Rossman said.
Be mindful of due dates and interest — and he warned folks to watch out for deferred interest promotions.
“That’s a nasty tactic that a lot of retail cards employ,” Rossman said. “They say 0% for 12 months, but the fine print says that if it’s deferred interest, if you don’t pay the full amount, by the time the clock runs out, then they go back and they charge you retroactively for all of the interest that would have accumulated.”
Content from The National Desk is provided by Sinclair, the parent company of FOX45 News.
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