Retail store card APRs hit record high

Shopping with a retail credit card this holiday season could make you as grumpy as the Grinch.

CreditCards.com’s annual retail credit cards study shows the average annual percentage rate (APR) for a retail credit card hit a record high of 26.72 percent, up from 24.35 percent last year. By comparison, the average APR for a general-purpose credit card sits at 22.66 percent.

The average store-only credit card charges 28.22 percent (up from 25.77 percent last year), while the average retail co-branded card charges 25.01 percent (up from 22.12 percent last year), the study found.

As APRs rise, retail cards are costly as ever

Ted Rossman, senior industry analyst at CreditCards.com, said these higher average APRs are potentially costing retail cardholders about $1.6 billion in additional interest charges, assuming cardholders make only the minimum payments each month. That’s based on outstanding balances for retailer-branded credit cards totaling $64.9 billion as of August 2022, according to the Equifax credit bureau.

Historical averages for retail credit card APRs

Source: CreditCards.com research

Eleven cards in this year’s study have maximum APRs of 30.74 percent, including the Speedy Rewards Mastercard, the Kroger Rewards World Elite Mastercard and cards offered by nine brands affiliated with Kroger. However, some consumers who sign up for those cards can qualify for lower rates depending on their creditworthiness.

Last year, store-only credit cards from Big Lots, Discount Tire, Jared, Kay Jewelers, Piercing Pagoda, Sterling Family of Jewelers and Zales shared the highest APR of 29.99 percent and remained the same this year. Another 17 cards — including those offered by BrandSource, Burlington and Wayfair — advertise the same rate. All of these cards charge the same high rate to all customers who carry balances, regardless of their credit scores.

Lowest average APRs for retail cards in 2022*

Source: CreditCards.com 2022 retail credit cards study

*APRs for some cards vary based on a consumer’s creditworthiness

Rossman said 29.99 percent “seems to be an important psychological barrier” for retail card APRs.

By law, he explained, most credit cards could charge higher APRs because card issuers tend to set up shop in states that don’t cap rates, such as Delaware, South Dakota and Utah.

“From a consumer perspective, 29.99 percent is still an astronomical rate,” Rossman said.

If you charged $1,000 and only made minimum payments at 29.99 percent, you’d be in debt for 51 months, and you’d end up paying a total of $775 in interest, according to Rossman. But the potential for staggering interest charges doesn’t stop a lot of consumers. A survey last year by CreditCards.com found 68 percent of consumers who had applied for a retail credit card had done so impulsively at least once.

Considering a retail card? Proceed with caution

Rossman said 0 percent APR promotions for retail cards reel in a considerable number of consumers. Card issuers refer to these as “deferred interest” offers. Translation: If you fail to pay the full balance before the 0 percent promotion ends, the card issuer charges you retroactively for all of the interest that you would have racked up from the very beginning. This is a common tactic with retail cards but not with general-purpose cards, he said.

However, Rossman added, retail cards “aren’t all bad.”

“Assuming you can pay your bills in full and avoid interest, the rewards can be compelling if you’re loyal to the store,” said Rossman, citing examples such as 5 percent cash back at Amazon.com, Best Buy and Lowe’s.

Nonetheless, Rossman advises caution when weighing whether to apply for a retail credit card.

“There’s a good chance you’ll be offered a retail credit card this holiday season. Don’t get pressured into making a bad decision at the checkout counter,” he said. “For starters, any rewards would only be worthwhile if you can pay your bills in full and avoid interest.”

“You also need to shop at the store pretty often for the rewards to be worth it,” Rossman added. “In many cases, it would be better to get a general-purpose credit card instead. These generally offer more flexibility, more generous rewards and better interest-rate promotions.”

The key advantage of retail credit cards is that they’re usually easier to get than general-purpose credit cards, even if you have a poor or limited credit history, according to the Consumer Financial Protection Bureau. As long as you regularly make on-time payments, a retail card can help you build or improve your credit, the bureau says.

In addition, these cards frequently provide rewards and other perks.

However, the bureau points out that one of the disadvantages of retail cards is the APRs might be higher than those for general-purpose cards. Also, you could be hit with significant interest charges if you don’t pay the balance in full each month or you don’t wipe out the balance before a promotional APR expires.

Furthermore, the National Foundation for Credit Counseling emphasizes that retail cards often come with low credit limits, which might not benefit your credit score as much as cards with higher credit limits. A higher credit limit can boost your credit score by improving your credit utilization ratio, which is a key factor in calculating credit scores.

Bottom line

A retail credit card may offer you the chance to buy a big-ticket item, pay for it over time with no interest and possibly earn some rewards. But with average APRs for store cards pushing near the 30 percent mark, tread carefully and take the time to consider a general purpose 0 percent APR card as an alternative.

“The decision to open a credit card should never be taken lightly, yet much of the marketing around store cards tries to catch consumers off guard and get them to make rash decisions,” the NFCC advises. “If you open a retail card, it’s certainly not the end of the world, but ideally you would give it some thought before saying yes.”

Methodology

CreditCards.com conducted the interest rate research Nov. 4, 2022, using publicly available terms-and-conditions disclosures for 94 cards (50 store-only cards and 44 co-branded cards). Each of the 100 largest retailers (as defined by the National Retail Federation based on 2021 sales) that offers a credit card program was selected for the study.