We’ve all heard the credit card pitch at checkout: You could save on today’s purchase, plus earn store rewards. While the offers may sound enticing, most retailer cards charge sky-high interest rates that only seem to be going higher.
At least 50 stores have raised credit card APRs over the past year, according to a Bankrate report. As of September 2024, rates were as high as 35.99%. But with the Federal Reserve cutting interest rates, shouldn’t credit card APRs be going down? For context, store card APRs averaged 30.45% last year, while the average interest rate across all credit cards was a little under 22%.
Opening a store credit card may seem beneficial, especially if you shop there frequently. But more traditional credit cards often have a lower APR and offer rewards and benefits that are useful beyond one retailer.
Here’s what the experts recommend doing if you’re tempted to apply for a store credit card — or if you already have one.
Why are we seeing higher store credit card APRs?
There are a few reasons why store credit card APRs are higher. To start, the Federal Reserve started raising interest rates in early 2022 to combat inflation, and it’s held interest rates at a historic high since last summer. While the Fed doesn’t directly set credit card rates, banks typically move rates in the same direction. So as the Fed raised rates over the past few years and kept them high, credit card rates have done the same.
But credit card interest rates in general have remained high, despite the Fed cutting the federal funds rate in September and November. Why aren’t rates falling?
While the banks generally follow the Fed’s lead, there are a number of other factors that go into determining rates, including profits. In recent years, credit card companies have faced increased competition — and lower profits — because of Buy Now, Pay Later services, according to Sean Gelles, the senior director of Payments Intelligence at J.D. Power.
“Buy Now, Pay Later services eat into traditional credit card market share, (so) issuers may focus on maximizing revenue from existing credit users, including through higher rates,” Gelles said.
Co-branded credit cards. like airline or hotel-branded credit cards, are linked to a credit card network and can generally be used anywhere credit cards are accepted. Closed-circuit, store credit cards can only be used for purchases at that particular store or retail brand.
Opt for a general rewards credit card instead
General rewards credit cards typically have lower APRs, and they often come with rewards and perks that store cards don’t offer.
For example, I have the Wells Fargo Active Cash® Credit Card* with a variable APR of 19.49%, 24.49%, or 29.49%. In addition, I can earn 2% cash rewards on most purchases at any store.
I also own the Chase Sapphire Preferred, a top travel credit card with a variable APR of 20.99% to 27.99%. I like the boosted redemption rate when I book through the Chase Ultimate Rewards portal when booking travel.
Some of these cards also offer a 0% introductory APR on new purchases. This gives you time — typically 12 to 21 months — to pay off your balance without accruing interest, which can save you a lot of money. “A high-rate credit card can be one of your worst choices for holiday spending, but a low-rate card may be one of your best,” said Gerri Detweiler, a CNET Money expert.
However, Detweiler said it’s important to avoid letting these cards entice you to go into debt. You should still only charge what you can afford to pay off. An intro purchase APR can give you some breathing room, but if you can’t pay off the balance in time or if it needlessly extends your holiday debt into next year, it might not be worth it.
Read more: Store Cards vs. Traditional Credit Cards: What’s the Difference?
What are your options if you have a store credit card?
A store credit card isn’t inherently bad, especially if you’re loyal to a particular retailer and can pay off the balance each month.
“Retail cards are often great for discounts, but terrible when it comes to interest rates,” Detweiler said.
Here are some options if you currently have a retail credit card.
Make a debt payoff plan
If you have an outstanding balance on your store credit card, make a doable debt payoff plan to pay the balance, especially considering the holidays. Aim to pay more than the minimum monthly payment to pay less in interest over time. And you may be able to pay off your debt sooner. You may also ask the issuer to consider a lower APR to save on interest, too.
Consider a balance transfer
If you already have a store credit card with a balance, consider applying for a balance transfer card. You can move your store’s credit card debt to one with a 0% introductory APR for a certain period of time, giving you more space to pay down your balance without accruing additional interest. You’ll want to factor in a 3% to 5% balance transfer fee that you’ll have to pay to transfer the balance, but a balance transfer can help you save money on interest over time.
Close the card
When I was 19, I opened a card with The Loft, a women’s clothing store, to get some new work clothes as a fresh college graduate. But I quickly realized it wasn’t a good choice since I rarely shopped there. I’ve since closed the card.
If the credit card is your only line of credit, though, closing it could hurt your credit.
Use the card to build your credit history
Even if you don’t use the card, keeping it open can help your credit. You’ll still have access to credit if you need it, and the longer you’ve had your credit card, the more favorable it may be to issuers and lenders. However, if your account doesn’t have any activity, the issuer may close the card, which could impact your score in the future. If you choose to do this, it’s best to check the card’s terms and conditions beforehand.
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