Shoppers should avoid store-branded credit cards if they plan to carry a balance.
That’s because the average retailer’s credit card charges a 23.43 percent interest rate, according to a report by CreditCards.com, a credit card comparison website.
That’s much higher than the national average for all credit cards, 15 percent.
The retailers that charge the highest APRs are Zales, 28.99 percent, and Staples, 27.99 percent. Two-thirds of retail-branded credit cards charge all cardholders an APR of 19.99 percent or higher.
There are 16 retail cards with a lowest-possible APR under 16 percent, depending on creditworthiness. The lowest flat-rate APR is the Military Star card at 10.24 percent.
But for most consumers, these cards’ APRs should be a red flag about the high interest rates they’ll be paying.
“If you regularly carry a balance, retail credit cards just aren’t for you,” said Matt Schulz, CreditCards.com’s senior industry analyst. “Even with potential rewards and discounts, the math just doesn’t work in your favor when interest rates are that high.”
Schulz said the best option is for consumers to shop around for lower-cost options.
However, if you do pay your balance off every month, you may be able to find discounts. CreditCards.com surveyed the 100 largest retailers and found that about 70 percent of them offer branded credit cards, some with discounts to entice shoppers.
Discounts
Most discounts apply to the first purchase, but about one in three discounts are designed to keep cardholders spending; for example, a gift card mailed to the cardholder’s home for a future purchase.
Consumers who keep spending may also be able to reach thresholds that give them more discounts. CreditCards.com found 12 cards that reward long-term, loyal customers this way.
The problem is that any discount that you receive from your retail credit card won’t matter much if you’re not paying your balance off each month.
Interest rates
If a consumer has a $1,000 balance on the average retail credit card and makes only the minimum payments, it would take him or her 72 months to pay off the balance and he or she would incur $833 in interest fees.
The interest expense drops to $370 at the national average APR of 15 percent for all credit cards. And the payoff time drops to 54 months.
At the average low-interest APR of 11.62 percent, the interest falls to $257 and the payoff time drops to 50 months.
Rather than a store card, a general-purpose rewards card would probably better serve consumers.
If you’re interested in a store card, don’t be pressured into making a quick decision.
When offered the card, ask for a brochure instead, then go home and read the details. If it still sounds like a good deal after reading the fine print, apply the next time you’re in the store. Chances are that all of those perks you liked will still be there, and most important, you’ll make a more informed decision.
