Interest rates

As Retail Credit Card Interest Rates Skyrocket, Know This Before You Apply

This offer for a store credit card may seem tempting as you shop this holiday season.

But you might want to think twice before agreeing.

As the Federal Reserve raises interest rates, credit card annual percentage rates — a measure of the annual cost of borrowing money — are rising. This is especially true for retail credit cards, which tend to charge the most.

The most expensive retail credit cards may come with a 30.74% annual percentageaccording to Ted Rossman, senior industry analyst at CreditCards.comwho calls the rate “crazy high”.

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Meanwhile, the average retail credit card charges 26.72%. Many other cards charge 29.99%.

Credit card interest rates more widely recently climbed to 19.04%. This rate is the highest since began tracking them in 1985, according to Rossman.

For retail credit cards, there has long been an unwritten rule among issuers that they will not exceed the 30% annual percentage rate, likely for fear of scaring off potential customers, according to Matt Schulz, an analyst in head of credit at LendingTree.

“Given how quickly and how often the Fed has been raising rates, we’re finally starting to see that ceiling crack a bit,” Schulz said.

Consumers struggling with historically high inflation may also be tempted to open these lines of credit to give their vacation budget some leeway. More than a third — 35% — of respondents to a LendingTree survey said they were at least somewhat likely to ask for a store credit card this holiday season, up from 29% a year ago.

But experts say you should carefully weigh the pros and cons before applying.

The value of an offer of 15% to 20% off your first purchase could be eclipsed by a higher annual percentage rate.

Also, if you can’t pay off the balance each month, you may end up incurring costly charges on your balance. Additionally, there are other factors to consider when determining whether the rewards will pay out.

1. Consider opportunity cost

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When it comes to retail credit cards, there are generally two types: lines of credit that apply to a specific retailer or other cards co-branded with credit card providers such as MasterCard or Visa that can be used more generally.

For a single-brand card to make sense, it has to be a store that you frequent often.

“You have to be a regular buyer to make it worth it,” Rossman said.

If you’re making a large purchase, such as buying several new appliances, the discount can be significant, as long as you’re able to pay off the balance before you accrue significant interest charges, Rossman said.

Still, you might want to weigh whether rewards using a more general-purpose card might be more generous or better match your spending style, he said.

2. “Understand what you’re getting into”

Opening a retail credit card can be an impulsive decision when paying in-store.

But before accepting the offer, you need to do your due diligence, according to Schulz.

“It’s really important that you understand what you’re getting into before you apply,” Schulz said.

If the payment offer sounds good to you, go home and do some research on what it entails, including interest and fees. Then, if you still want it, you can always request it the next time you visit the store.

That way, you’ll make a more informed choice and be less likely to regret your decision, Schulz said.

3. Beware of deferred interest

As inflation continues to rise, reaching 8.5% in the United States in March, it is important to find ways to protect your savings.


Some store credit cards offer what is called deferred interest, with an introductory rate of 0%.

Notably, if that term expires and you have an outstanding balance, the credit card company can go back and charge you any interest you would have accrued, Rossman noted.

“Be especially careful if a store card offers a deferred interest promotion,” Rossman said. “That retroactive interest can really hit you.”

4. Settle outstanding debts

It’s not just new retail cards that charge higher interest rates. Borrowers with existing retail credit cards could also see the rates charged to them increase soon, Schulz said.

As interest on unpaid debts is also increasing more generally, credit card holders would be wise to take a few steps to reduce their charges.

First, strive to pay off as many of those balances as possible, according to Schulz.

Next, consider a 0% balance transfer card.

People don’t realize how good a chance they have of getting a rate reduction.

Matt Schulz

Chief Credit Analyst at LendingTree

“It might be the best tool you’ll have in your tool belt for dealing with credit card debt because it can give you up to 21 months without accruing interest,” Schulz said.

These offers may not be as generous as the loan market tightens, which may include higher one-time balance transfer fees or shorter terms for the 0% rate, Schulz said.

Finally, just try asking your current lender for a lower annual rate.

A LendingTree survey from earlier this year revealed that 70% of those who tried it were successful. But the key is you have to try, Schulz said.

“People don’t realize how good a chance they have of getting their rate reduced if they just take the time to call,” Schulz said.