Heading out to shop? The cost
of borrowing from your favorite retailer has gone up: The average APR on the
credit cards from America's largest retailers has climbed more than 2 percentage
points to 23.23 percent, according a CreditCards.com survey. That's more than 8 points higher than the national average for general-purpose cards.
It's not just
the rates that have expanded since 2010, when the survey was last conducted. The 2014 retail
credit card survey reveals that many retailers have broadened their credit card
programs to include more card options and a bigger array of discounts and other
perks to encourage spending.
the survey portrays a market segment that is offering better rewards to
consumers who can pay off their shopping sprees and bigger debts to those who
Despite high interest rates, consumers love their retail cards. According to the Federal
Reserve, the market for private-label retail cards alone is huge, accounting for approximately
$270 billion in sales last year.
review encompassed the top 100 retailers by sales volume, as tracked by the National Retail Federation. Out of the
100 retailers, 36 offer credit card programs (Survey methodology).
retailers offer 61 cards within their consumer credit programs, including two
debit cards, 32 store-only cards and 27 general purpose (known as co-branded) cards.
The average APR of these cards is 23.23 percent, marking a 2.01 percent
increase from the 2010 average APR of 21.22 percent. The November 25 average for new card offers is 14.98 percent, and low-rate cards average 10.37 percent.
rates make a difference. A consumer who puts a $1,000 balance on the average
retail credit card and makes only the minimum payments would need 73 months to
pay off the balance and would incur $840 in interest fees. Someone who puts the
same splurge on a card with the average low rate of 10.37 percent would pay just
$232 in interest -- and be out of debt 17 months sooner.
highlights from the 2014 retail store card survey:
The 27 use-anywhere cards are, on average, a better deal for
consumers who carry a balance. They have an average APR of 21.63
percent. The 32 in-store-only cards check in at an average APR of 24.48
retailers offer a range of rates to consumers, based on
retailers offer some type of introductory interest offer or reward with credit
Rewards are becoming more complicated. Three large retailers -- Macy's and JCPenney -- have tiered programs with multiple levels, offering premium perks and elite status for high-spending cardholders. Others, including Kohl's, Gap, Best Buy and Target, have "upgraded cardholder" perks systems similar to tiers.
Jonathan Gelfand, managing director of
financial services company Partner Advisors, predicts the trend toward expanded
retail card offerings will continue, especially as the economy and consumer
spending confidence improves.
cards have become more appealing and the retail market offers many doors to new
credit program opportunities," he said. "I think this area will
continue to be hot."
Rise of the APR
the 2010 survey, store card APRs have been on the rise.
BY THE NUMBERS
Highest APR: Zales, 28.99 percent.
Biggest increase: Toys R Us/Babies R Us co-brand, up 5.75 percent to 26.99 percent.
Lowest APR: OfficeMax, 8.99 percent.
Biggest APR decreases: Signet Jewelers. Three of its four cards are down 7.99 percent (from a flat 24.99 percent APR to a 17-24.99 percent APR range).
APRs on private label retail cards are not unusual, but current rates can be
attributed to a retailer needing to bounce back from industry stressors, says
Madeline Aufseeser, a senior analyst with financial research firm Aite Group.
retail credit card market is not as profitable as it used to be as a result of
the combination of the CARD Act, the overall market economy and also consumer
spending behavior," she says.
The Credit CARD Act of 2009 placed limits on how often card
issuers can change fees and interest rates. In an effort to make up for lost
profit, many issuers raised their cards' APRs. And, as consumer spending habits
declined in response to the recession, some retailers resorted to boosting APRs
to add to their revenue stream.
with the economy stabilizing and any fallout from the CARD Act behind them,
store card rates aren't expected to drop anytime soon, according to Gelfand. In
fact, when the Federal Reserve begins raising rates, which it has announced its
intention to do in 2015, store cards -- along with all forms of credit -- will
become more costly.
Getting poll results. Please wait...
rates will continue to rise because one of the key drivers [of an interest rate
increase] is the prime rate," he said. "Almost all store card account
[APRs] are based on the prime rate plus predictions."
The prime rate, established by the Wall Street
Journal and based on a survey of the 10 largest U.S. banks' corporate interest
rate offers, sets a basis for interest charges on loans and lines of credit. The
majority of credit card holders are charged the prime rate, which is currently
3.25 percent, plus an additional percentage set by the issuing bank and often
based on applicant creditworthiness.
now, consumers with good credit may find slight relief from high store card
APRs in co-branded card offers, many of which offer variable rates closer to
that of the national average APR for general purpose cards -- about 15 percent.
For example, consumers with good credit may be eligible for a 10.90 percent APR
Nordstrom credit card versus someone with poor or little credit that may
offered a significantly higher 22.90 percent APR.
You don't have to be afraid of high store card APRs, so long as you can pay off
your accumulated balance at the end of each billing cycle. If you don't carry
a balance, the APR doesn't matter, says certified credit counselor Jonathan
Growing emphasis on co-branding
of retailers offering a single private-label credit card are dwindling.
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.
36 retailers surveyed this year, only 12 offer just a private-label store card. There were 17 such cards in 2010.
stores have partnered with the large payment networks, such as Visa, MasterCard
and American Express, to include at least one use-anywhere card option in their
credit programs. For example, in 2010, Best Buy had just one private-label
store card offer available to consumers. Today, Best Buy offers two store cards
and two co-branded MasterCard options, which are issued based on applicants'
retailers looking to give their credit card programs a boost in loyalty, revenue
and consumer appeal, co-branding is a good option, says Pam Lloyd, MasterCard's
senior vice president for global product development and consumer products.
programs are highly successful in driving brand awareness, loyalty and
engagement as well as increasing sales," she says.
cards are attractive to consumers who want the benefits of a store credit card,
but don't want to be limited in their purchasing options. Plus, the more
consumers can spend, the greater the profit margin for retailers, which is a
win-win, says Partner Advisors' Gelfand.
cards are largely funded through the interest rates people pay and also the [transaction]
fees other merchants outside the store network pay when people use their cards
there," he says. "Private label cards tend to have lower profit
margins since they can only be used at a small number of locations," adds
Spend more, get more
offers abound to entice cardholders into even more opportunities to spend and "save."
36 surveyed retailers, 22 offer special introductory financing rates and/or
instant rewards to approved credit program applicants, such as 0 percent APR
for six months or 20 percent off the first card purchase.
quick 20 percent off might be enough to get a consumer to apply for a card for a single splurge, retail store cards need to offer more to keep their cardholders engaged long-term, says Stephanie Cohen, a
former MasterCard vice president and a partner in LoyaltyOne Consulting, a
Richmond, Virginia designer of loyalty programs.
New trend: Tiered rewards A new development in this year's CreditCards.com survey is
tier-based loyalty programs that use exclusive rewards to encourage consumers
to keep spending.
TOP 5 HIGHEST, LOWEST APR OFFERS
Zales - 28.99%
Office Depot Personal Credit - 27.99%
Staples Personal Account - 27.99%
My Best Buy credit card - 25.24-27.99%
My Best Buy preferred credit card - 25.24-27.99%
OfficeMax Visa Signature Card - 8.99-17.99%
Army Air Force Exchange 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%
and Macy's are two of the biggest stores now using tiered loyalty programs. Their cardholders can move up the loyalty ranks -- often described with words such
as "elite" and "preferred" -- simply by spending more
money. Every new level grants access to more cardholder benefits and discounts.
Loyalty program experts believe this type of program structure will soon show up at
other retailers because when combined with an introductory offer, tiered
rewards can be very effective.
continued engagement and recognition given at each level is what drives people
to continue their program involvement," LoyaltyOne's Cohen says.
"People will go to extremes to get to the next tier just for that
these multilevel, long-term rewards programs run the risk of becoming difficult
to understand, which could have a negative effect on consumer engagement, she
we have found is that some programs are so complex that people don't engage
because they don't understand it," Cohen says. "You don't want
consumers to be like, 'It's hurting my head to try and figure this out so I'm
just going to disengage.'"
the benefits of retail store credit cards simple and clear will be crucial
for retailers as loyalty programs continue to develop, especially when
consumers face higher-than-average interest rates.
interest charges are applied toward the account, any potential rewards, bonuses
or discounts earned could be quickly negated and you could end up paying much
more in the end for the purchase," says credit counselor Gideon. "You
don't have to avoid the cards, just be careful."
Survey methodology The 2014 Retail Credit Card survey
was conducted in July 2014 by CreditCards.com using the retail credit card
terms and condition agreements of 61 cards from 36 different retailers. The
retailers were selected based on the 2014 National Retail Federation chart of
Top 100 retailers based on 2013 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 2014 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 58
numbers (less two debit cards and one other credit card with an unlisted APR).
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