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Retail card survey 2015: Average APRs inch up

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If a hefty purchase discount is tempting you to apply for a credit card from one of your favorite stores, proceed with caution. The average APR on America's largest retailer credit cards has risen to 23.43 percent, according a CreditCards.com survey.

That's much higher than the national average for all credit cards (15 percent) and higher than the 23.23 percent we found in the 2014 retail card survey.

CreditCards.com's analysis covered the top 100 retailers by sales volume, as tracked by the National Retail Federation. Out of the 100 retailers, 42 offer card programs, some with more than one type of card. In all, the top retailers in the United States issue 64 cards: two debit cards, 38 store-only cards and 24 general purpose (known as co-branded) cards.

Compared to other credit cards, their rates are high: Two-thirds of retail-branded cards carry an APR of 19.99 percent or higher. To see individual cards' data, read CreditCards.com's 2015 retail credit card survey data.

Other survey highlights:

  • The 24 general purpose, use-anywhere cards are, on average, a better deal for consumers who carry a balance. They have an average APR of 21.58 percent. While that's up almost 1 percentage point from last year, it still handily beats the store-only cards' average APR of 24.56 percent.
  • Of the 64 retail cards, 44 offer discounts or reward programs. Most of the discounts apply to the first purchase, but about one in three are designed to keep cardholders spending, for example, by a gift card mailed to the cardholder's home for a future purchase.
  • Retail card programs change quickly. Of the 31 retail cards surveyed in both years, 17 had made changes.

(See survey methodology).

The cost of high APRs
The retail cards' high rates make a difference for those trying to pay down a card balance. A consumer who puts a $1,000 balance on the average retail credit card at 23.43 percent, and makes only the minimum payments would need 72 months to pay off the balance and would incur $838 in interest fees. That interest expense would drop to $370 if the balance was on a card with an APR of 15 percent. Plus, the cardholder would be out of debt 18 months sooner.

These high store card rates aren't expected to decrease anytime soon. When the Federal Reserve begins raising its benchmark interest rates, which it may do before the end of 2015, store cards -- along with all forms of variable rate credit -- will become more costly, sending the APRs even higher. Some retail cards, such as Staples (27.99 percent) and Zales (28.99 percent), already have regular rates at or above other cards' penalty rates. The average credit card penalty rate is 28.45 percent.

HIGHEST, LOWEST RETAIL CARD APR OFFERS
Highest:
  • Zales Jewelers credit card: 28.99%
  • Staples personal credit card: 27.99%
  • 12 additional cards carry a flat-rate 26.99% APR
Lowest:
  • Dillard's American Express card: 9.99-24.99%
  • Military Star Card: 10.24%
  • Nordstrom Retail card: 10.90-22.90%
  • Nordstrom Visa Signature card: 10.90-22.90%
  • Williams-Sonoma Visa Signature card: 13.74-21.74%
  • 16 cards carry interest rate ranges starting at less than 16%

While many consumers have put up with high retail card interest rates in favor of discounts and rewards, Dennis Armbruster, vice president and managing partner of LoyaltyOne Consulting, believes there will be a limit as to how high store card APRs can go before cardholders push back.

"This could be a point to watch card issuers because at some point it's just not going to be worth it in the consumer's eyes," he said. "There is just a general heightened level of sensitivity to high costs among consumers. People are still feeling the impact of 2008-2009."

Those with good credit can avoid the risk of high interest charges by applying for a store's co-branded card. Many offer variable rates closer to the 15 percent national average APR for general purpose cards. For example, the APR of the Dillard's co-branded American Express card could be as low as 9.99 percent if you have excellent credit -- less than half the rate of the store-only card (22.99 percent to 24.99 percent).

Cards evolve, for better and worse
Because retail credit card programs change rapidly, current and prospective cardholders should pay attention.

"It's tricky because every credit card is different," said April Lewis-Parks, director of education with Consolidated Credit Counseling Services, a Fort Lauderdale, Florida, credit counseling service. "Consumers really need to sit down and look at the terms.

Of the 31 retailers with card programs surveyed again this year, 17 made at least minor changes to their card programs over the past 12 months -- and some of these changes may not be in the cardholder's favor. Some increased interest rates, others lowered promotional discount offers or reduced the number of reward points awarded per dollar spent.

Retailers that made their cards less generous include:

  • Wal-Mart. The Wal-Mart cards' gas discount has been reduced to 5 cents off per gallon from last year's 15 cents off per gallon.
  • Gap: Last year, cardholders who spent $800 on their card were upgraded to "Silver" status. This year, they have to accumulate 5,000 points. With the way the points-earning system works, this means cardholders have to spend $1,000 to reach Silver status.
  • Office Depot/OfficeMax: Following a company merger, the once-separate Office Depot and OfficeMax credit cards are now one, featuring a 25.99 percent APR. That's lower than the former Office Depot card's 27.99 percent APR but not nearly as good as the 8.99 percent low end of the old OfficeMax card.

Some year-over-year changes have been positive. For example: 

  • The Army/Air Force Exchange Military Star card program ended its partnership with MasterCard in early 2015 and now only offers its store-only card, but added a reward program to that card.
  • Ace Hardware and BJ's Wholesale Club now boast two retail card options; before both only offered one
  • Home Depot, Meijer, Staples all now offer a first purchase discount to new cardholders.

Store card loyalty program changes made over the past year reflect retailers' desires to find a card program that's the best fit for them. As a result, it's a trial-and-error process that involves adjustments from time to time, according to Mark Horwedel, CEO of Merchants Advisory Group.

"I think merchants are learning that they need to provide attractive reward features to compete with bank [card] reward programs," he said. "Merchants are looking for creative ways to develop their own alternative products to traditional branded cards."

Retailers seek long-term cardholder relationships
This year's survey revealed many retailers are using rewards to keep cardholders engaged and spending.

Of the 64 surveyed cards, 44 offer some type of introductory reward offer to new cardholders, such as a first card purchase discount. However, while 23 cards offer immediate purchase discounts -- either as a percent or dollar off purchase total -- 20 offer introductory perks that are to be enjoyed later, such as mailed gift cards, statement credits or a coupon good on the next card purchase.

BY THE NUMBERS: INTRO REWARDS
Our survey found that of the top U.S. retailers' credit cards, 44 of 64 have some kind of intro reward or discount. The most common were:
  • First purchase percentage-off discount: 20 cards. The most common offer is 10 percent off. The highest: 20 percent off.
  • First purchase dollar-off discount: 8 cards. The most common offer was a discount of $10-$15. The highest: $50 off.
  • Points: 7 cards.
  • Store gift cards: 5 cards.
  • Statement credit for signing up: 2 cards.

"The card reward programs are aggressive and competitive," Lewis-Parks said. "Stores are vying for your attention and to take advantage of everything they offer, you have to keep coming back to them."

Retail cards typically feature bonus offers of 10-15 percent off an initial purchase, but those deals are tiny in comparison to the sign-up bonus offers of rewards credit cards. Retail cards, however, don't require great credit scores or big spending to earn the sign-up bonuses.

Last year's retail card survey revealed many stores use tiered reward programs to honor their highest-spending cardholders for ongoing customer loyalty. This year's survey found many of those elite program structures remain: 12 cards in this year's survey have reward levels based on cardholder spending.

Some retailers are mixing it up, using both short term and long term engagement techniques, such as Kohl's and Maurices. New Kohl's charge card holders receive a 20 percent first purchase discount and an additional 15 percent off coupon for a later purchase. New Maurices cardholders get 10 percent off the first card purchase and also receive a 15 percent off purchase coupon when the new card comes in the mail.

Consumers with little or no credit can also benefit from retail cards: They remain among the easiest types of card for credit newbies to gain.

Not for everyone
With high interest and complicated loyalty programs, retail cards may not be for everyone. However, certain consumers may be able to use them to build credit while taking advantage of store discounts and other money-saving opportunities.

"For someone just coming into the credit market to establish credit, a retail card can be great," Lewis-Parks said. "'Even though the interest rates might be high, start small and be careful. Buy something one month and pay it off. After holding the card for six months, your score should improve and you may be able to access more general purpose cards."

Just make sure you aren't charging frivolous purchases for the sake of building credit.

"We've seen people come in with huge amounts charged to cards like the Victoria's Secret Angel card," Lewis-Parks said. "You just don't need $8,000 charged to a card like that." 

RETAIL CARD TYPES DEFINED

Co-branded: Cards sponsored by a retailer and a bank or card network such as Visa, MasterCard, Discover or American Express. These cards can be used at both the issuing retail store and anywhere else the card network is accepted.

Private label: Store-only credit cards are issued by a retailer partnered with a payment processor and can only be used within a designated retail network.

Debit: Retailer-issued debit cards are tied directly to your checking account. These cards allow you to get some of the perks associated with a retail store card without opening a line of credit.

Survey methodology:
The 2015 Retail Credit Card survey was conducted in October 2015 by CreditCards.com using the retail credit card terms and condition agreements of 64 cards from 42 different retailers. The retailers were selected based on the 2015 National Retail Federation chart of Top 100 retailers based on 2014 sales. All retailers from that database that offer a retail credit card program were selected for study. Collected data points included APR, rewards program details, introductory offers, co-branded partnerships, number of cards included in programs and their names.

The 2015 average APR was determined using the APR data listed in each card's terms and conditions document. APRs noted as ranges to be issued based on applicant's credit were averaged and then the averages of those ranges were used in a standard average formula comprised of 61 numbers (less two debit cards and one other credit card with an unlisted APR).

See related: CreditCards.com 2015 retail credit card survey data

Published: October 14, 2015


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Updated: 05-28-2016


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