Watch out for store credit card offers as interest rates hit new highs

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During the holidays, retailers increase their efforts to promote store-brand credit cards, which often seem attractive to consumers, especially when they offer instant discounts.

The problem? Store credit cards now carry record interest rates and may entice shoppers to get into debt. The average annual percentage rate (APR) on retail store cards is now 26.72% – a record and up from 24.35% last year, according to analysis by CreditCards.com. The average APR on general purpose credit cards is 22.66%.

Kroger, the nation’s largest grocery chain, recently increased the APR on new offers from its credit card to a new high of up to 30.74%.

Thirty percent was long considered an unofficial ceiling below which most card issuers kept their interest rates.

According to Lending Tree, cards with interest rates above 30% were typically issued by smaller banks and targeted at customers with bad or no credit. The cards issued by the big banks that dominate the credit card industry just didn’t go there.

The Kroger Rewards World Elite Mastercard, issued by US Bank, exceeded this threshold with an APR range of 17.74% to 30.74%.

“The fact that the nation’s largest grocery store was one of the first to do so is significant. The fact that the card is issued by one of the top 10 card issuers in the nation is also significant,” said Matt, chief credit analyst at Lending Tree. Schulz said in a statement to CBS MoneyWatch. “That means those rates are going mainstream, albeit slowly, and that doesn’t bode well for consumers who are already struggling in the face of runaway inflation.”

Wayfair and Speedway have also hiked interest rates up to 30.74% on branded credit cards, according to Lending Tree.

Personal finance experts warn against signing up for store cards, especially if you can’t pay off the balance in full each month and face interest charges. If you carry a balance to the next month, interest accrues and is added to what you owe.

“If you’re considering a store card, make sure you can still pay in full. If you pay in full, you’re not charged that interest rate,” said Ted Rossman, senior industry analyst at CreditCards. com. “If you have a balance, you’re charged interest every day, and that can be significant over weeks, months, and years.”

Beware of these offers

Some retailers offer products that promise not to charge customers interest on outstanding balances for 12 months, but once that period expires, they apply a fixed APR retroactively. These so-called deferred interest offers may sound attractive, but they are often misleading and come back to bite consumers later.

“Deferred interest is a bad tactic that a lot of store cards use,” Rossman said. “They may say no interest for 12 months, but if you don’t pay your balance in full [during that period] they come back and later charge you any interest that would have accrued.”

Do your homework

Rossman also advises against making the impulsive decision to get a store card at checkout, urging people to instead ask for a brochure and research the product. Indeed, a 15% discount at the point of sale can be subject to conditions.

“You might think you’re opting for an in-store loyalty program not realizing it’s a credit product with interest rate and debt and credit score considerations,” a- he told CBS MoneyWatch.

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

Also research the rewards offered by a store card and compare them to the benefits you get from general purpose credit cards.

“There are opportunity costs even if you don’t pay interest. It might not be a good card for you if you don’t earn as many rewards,” Rossman said.

If you’re spreading your spending across many different retailers, it probably doesn’t make sense to subscribe to a single store’s card, especially if it’s only valid at one store brand. Cards from some stores are co-branded and can be used anywhere Visa or MasterCard are accepted, for example.

When a private card makes sense

Asking for too many lines of credit can also hurt your credit score, so choose carefully.

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

Some store credit cards can make financial sense if you’re able to pay off your balance in full each month and offer meaningful rewards at a retailer where you shop a lot.

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

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