A card offered by BrandSource, a network of locally owned appliance, electronics and home goods stores, comes with an interest rate of 30.49 percent. Three others — Big Lots, Piercing Pagoda and Zales — have rates of 29.99 percent.
“The long and short of it is, if you carry a balance, retail cards just aren’t for you regardless of what discounts or rewards they may provide,” said Matt Schulz, an analyst for CreditCards.com. “Thirty-percent interest rates are nothing to take lightly.”
Store cards have in recent years become a fixture of checkout counters, offering perks like 20 percent off a first purchase, as well as in-store discounts, free shipping and cash back on future orders. Many also come with deferred interest plans that don’t charge customers as long as they pay off their balance in full within a given period.
But after that, the cards often charge interest rates that are twice as high as those of regular credit cards, Schulz said. Some also retroactively collect interest on all past purchases, leaving consumer with much more debt than they’d anticipated.
“I’ve dealt with person after person who’s still paying off a $100 winter coat or their kids’ school supplies, five, 10 years later,” said Charles Juntikka, a New York bankruptcy lawyer. “It’s always been bad, but it’s getting progressively worse.”
For retailers, store cards have become a way to drum up customer loyalty while bringing in extra cash to make up for narrowing profit margins. Macy’s, for example, made 39 percent of its $1.9 billion profit last year from credit card fees, according a Morgan Stanley analysis cited by the New York Times. The company’s credit card, issued by Citi, comes with a 26.24 percent interest rate.
“The justification is that these are cards that are available to everybody, so the bank needs to protect themselves by charging a higher interest rate,” Schulz said, adding that delinquency rates on store cards are generally higher than on non-branded credit cards.
Overall, the average interest rate for credit cards is 16.15 percent, up from 15.18 percent a year ago, according to CreditCards.com. Many cards increased their rates this year, Schulz said, following modest rate hikes by the Federal Reserve.
But despite higher interest rates, Americans are making more purchases on store credit cards. Retailers are actively courting shoppers, Schulz said, by offering better rewards and larger discounts on purchases. And, he added, store cards are often offered to shoppers just as they’re getting ready to pay, which means they’re often signing up on the spot, without having read the fine print.
“There are very often spur-of-the-moment, spontaneous decisions,” Schulz said. “People often don’t have all the information they need to make the wisest decision.”