Beware of store credit card offers as interest rates hit new highs

Around the holidays retailers double down on promoting store-branded credit cards, which consumers often find attractive, especially when they offer instant discounts.

Catch? Store credit cards now carry record-high interest rates, and may drive shoppers to pay off debt, According to an analysis by, the average annual percentage rate (APR) on retail store cards is now 26.72%—a record high and higher than last year’s 24.35%. The average APR on general purpose credit cards is 22.66%.

The nation’s largest grocery chain Kroger recently raised the APR on new offers for its credit cards to 30.74%.

Thirty percent has long been viewed as an unofficial limit below which most card issuers keep their interest rates.

According to LendingTree, cards with interest rates above 30% are typically issued by smaller banks and designed for customers with poor or no credit. The cards issued by the major banks that dominated the credit card industry didn’t go there.

The Kroger Rewards World Elite MasterCard, issued by US Bank, has surpassed that threshold with an APR range of 17.74% to 30.74%.

“The fact that the largest grocery store in the country was one of the first to do it. The fact that the card is issued by one of the 10 largest card issuers in the country,” said LendingTree’s chief credit analyst Matt Schultz said in a statement to CBS Moneywatch. “It means these rates are slowly going mainstream, and that doesn’t bode well for consumers who are already facing massive inflation.”

According to LendingTree, Wayfair and Speedway have increased interest rates on store-branded credit cards to 30.74%.

Personal finance experts caution against signing up for a store card, especially if you can’t pay off the full balance each month and face interest charges. If you keep the balance for the next month, interest accrues and is charged on the amount owed to you.

“If you’re considering a store card, make sure you can always pay in full,” said Ted Rossman, senior industry analyst at If you pay in full, you’re not charged this interest rate. Is.” “If you keep a balance, you are charged interest every day, and this can be significant over weeks, months, and years.”

Beware of these offers

Some retailers offer products that promise not to charge customers interest on the amount owed for 12 months, but once that period is over, apply a fixed APR retroactively. Those so-called deferred interest offers may sound tempting, but are often misleading and come back to bite consumers down the road.

“Deferred interest is a bad strategy that a lot of store cards use,” Rossman said. “They may say no interest for 12 months, but if you fail to pay your balance in full [during that period] They go back and later charge you for all the interest they accrue.”

Do your homework

Rossman advises against making the immediate decision to get a store card at the checkout counter, urging people to request brochures and research the product. This is because a 15% discount at the point of purchase may come with wires attached.

“You might think you’re opting for a store loyalty program without realizing that it’s a credit product with an interest rate and loans and credit scores,” he told CBS MoneyWatch.

It pays to be cautious, especially around the holidays, when retailers ramp up their marketing of branded cards.

Also research the rewards store cards offer and compare them to the benefits of a general-use credit card.

“There’s an opportunity cost even if you’re not charged interest. If you’re not earning that many rewards then this may not be a good card for you,” Rossman said.

If you spread your spending across several different retailers, meanwhile, it probably doesn’t make sense to sign up for one store’s card, especially if it’s only good at one brand in the store. For example, some stores’ cards are cobranded and can be used anywhere Visa or MasterCard is accepted.

When a store card makes sense

Applying for too much credit can also ruin your credit score, so choose carefully.

“When building and accessing credit, you don’t want to waste an application because you end up getting annoyed by the credit bureaus if you apply for too much credit in a short amount of time,” Rossman said.

Some store credit cards may make financial sense if you are able to pay off your balance each month and if they offer meaningful rewards at the retailer where you make a lot of purchases.

For example, Amazon, BestBuy, Target, Walmart and Wayfair all offer credit cards that give customers 5% cash back on all purchases, notes in its analysis.

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