Former newspaper reporter now focused on rewards and fintech.
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Store cards are trying harder to look more like general-purpose cash back cards with more robust rewards programs, all the while charging more for the privilege, according to CreditCards.com’s 2017 annual survey of retail credit cards.
Americans love their credit card rewards. They’ve long been a powerful draw for cardholders, and according to TSYS’ 2016 U.S. Consumer Payment Study, they serve as a strong incentive for choosing one card over another. Recent years have seen explosive growth in the rewards offered with general-purpose credit cards, but retail credit cards have lagged behind. CreditCards.com’s latest study seems to show that that is changing, however, and more retailers are tweaking their cards to better compete.
“One of the biggest reasons retailers issue credit cards is to help build customer loyalty,” said Craig Shearman, vice president at the National Retail Federation. “Part of that is attracting them through special deals and special discounts and such that can come with the card.”
For customers, however, that loyalty can come with a high price because of high interest rates. If the balance isn’t paid off right away, expect to pay dearly as the average retail card APR has risen for the third straight year to 24.99 percent, compared to the average general-purpose credit card APR of 16.15 percent.
According to Experian’s 2016 State of Credit analysis, consumers hold an average of 1.51 retail cards with an average balance of $1,081.
CreditCards.com gathered data on cards offered by the top 100 retailers in the United States. Not every retailer offers a card, but many do. Some offer both a store brand card as well as a more general-purpose co-branded card affiliated with a major card network such as Visa or Mastercard. In all, 65 cards from 40 retailers were surveyed – 41 store-only cards, 23 co-branded cards and 1 debit card. To view data on specific cards, see the 2017 Retail Card Survey data page.
- Interest rates are rising. The average retail card APR is now 24.99 percent, up 1.15 percent from 2016. The number is even higher for store-only cards (26.38%). Some of that increase can be attributed to three Fed rate hikes since December 2016, totaling .75 percent.
- Rewards are more common. Fifty-two cards offer rewards programs based on how much a consumer spends on the card, compared to last year’s 45.
- Bigger discounts. Twenty-five cards tweaked reward programs since 2016. The good news is, most are for the better. Twenty-one cards added value to their rewards program, whether in the form of a bigger first purchase discount or enhancements to a tiered rewards program based on spending.
- Special financing deals proliferate. Twenty-seven cards surveyed offer special financing deals to cardholders by the way of deferred interest or an introductory APR.
Boosted rewards programs for loyal shoppers
The most-common offer among store card rewards programs (30 percent) surveyed was 5 percent back on in-store purchases.
Over the past year, 25 of the cards surveyed have tinkered with their loyalty programs, many of which included a beefed-up card sign-up bonus (consisting of either a first-time purchase discount, bonus points or credit toward future purchases) or by adding tiered rewards programs based on spending.
For example, Sears Mastercard retooled its card rewards program in February. The card had no rewards system in place in 2016, but now boasts a point system that offers 5 percent back in points at gas stations, 3 percent back in points on grocery stores and restaurants, 2 percent back in points on Sears and Kmart purchases and 1 percent back in points on all other purchases for the first year. After that, the card reverts to a less-generous rewards program.
But all may not be as it appears, said Ryan Douglas, a senior manager of First Annapolis Consulting, who works with store card issuers and retailers.
“It looks really good on paper to say, \u2018Oh, we’re going to give 4 percent back on gas,’ when, in reality, the percent of spend on gas on those cards is pretty low,” he said.
Customers are often incentivized to apply for store cards at checkout with a same-day bonus or discount, such as the $70 gift card that the Amazon Prime Rewards Visa Signature card doles out to approved applicants.
Nearly two-thirds of the cards in the pool offer some kind of perk when you sign up for a store card, which is typically same-day, percentage-off discounts on purchases.
Few cards bold enough to cross 30 percent APR threshold
In addition to tinkering with rewards, store card issuers have raised interest rates over the past year.
Seventy-nine percent of the cards surveyed in 2016 raised rates in tandem with the three Federal Reserve rate hikes, boosting APRs across all variable rate cards by 0.75 percent since December. This pushed already sky-high store card APRs even higher.
One card in the survey, the Belk Rewards Card, raised its APR (25.49 percent) beyond the .75 percent, increasing a full percentage point from 2016.
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Overall, retail card APRs are nearly 9 percentage points higher than the average nonretail credit card APR, and single-store store card APRs are even higher. The average store-brand card has a 26.38 percent interest rate while the average APR for co-branded cards sits at 22.51 percent.
Retail cards typically have higher interest rates because issuers are often taking on higher risk cardholders.
“The reason the interest rates are higher is that retailers are much more liberal in issuing a credit card to customers than the banks might be,” Sherman said. “These cards are very often offered to young people who are just starting to build a credit history or they can be offered to someone who maybe has a weaker credit history who wants to get a card.” As a result, most retail cards are easier to qualify for and come with much lower credit limits than general-purpose cards.
However, there appear to be limits as to just how high retailers are willing to go. Even as many retailers push card APRs higher into the stratosphere, most seem reluctant to push their card’s APR above 30 percent.
“I think that 30 percent has always been that unspoken threshold that a lot of the retailers feel uncomfortable going over,” Douglas said.
Since rates across all retail cards are at such a high level, the lack of competitiveness isn’t going to drive down APRs, Douglas said.
Only one card in the CreditCards.com survey pool, the Brandsource credit card, crossed that threshold by charging 30.49 percent in interest. Coming in close behind the Brandsource card at 29.99 percent APR is the Big Lots credit card, Piercing Pagoda card and the Zales credit card.
“But as long as they’re all increasing in that direction, as soon as someone does it, I would think that others will follow,” Douglas said.
With APRs that high, many with thin or less-than-perfect credit files may be better off trying to apply for lower-APR cash back cards, student cards and even a few secured cards. Depending on their credit score, those cards could offer more rewards at more reasonable interest rates.
Special financing deals
Despite high APRs, if you play your cards right by paying off the balance before interest kicks in, you can benefit from a retail card’s special promotions and rewards programs. Of the 65-card pool, 27 retail cards offered special financing on big-ticket items.
For example, the R Us Mastercard ( or Toys R Us and Babies R Us shoppers) offers six-month special financing with no interest on a purchase of $299 or more or 12 months with no interest on a $749 or more purchase.
Low interest introductory offers were few and far between, with only eight cards offering a lesser APR for high-price purchases, which are designated by the retailer.
For example, the My Best Buy Credit Card allows cardholders to pay 11.90 percent interest on eligible purchases for 48 months. The electronics retailer also offers 3.99, 5.99 and 7.99 percent on select purchases for a 60-month period.
Deferred-interest deals, which allow customers to avoid interest entirely if a purchase is paid in full during an allotted time frame, were offered by 26 cards surveyed. These offers, however, often come with a dangerous caveat: If the balance isn’t paid off in full by the promotion end-date, the cardholder is smacked with interest charges on the entire purchase, dating back to the original purchase date.
For example, consumers looking to spruce up their house can pay no interest on Home Depot purchases of $299 or more if they pay off the balance within six months. However, fail to pay off your purchase in that time and you will be charged on the entire purchase price.
“If you make the payments on the schedule that’s agreed to, you get a good deal. But you have to look at those terms going into it and make sure that’s acceptable,” said the National Retail Federation’s Shearman.
While retail cards may not be for everyone, they can provide some valuable discounts to customers who are fanatical about their favorite brand, but who are also diligent about paying off their balances before interest charges kick in.
The survey was conducted in September and October 2017 by CreditCards.com using the terms and conditions agreements of 65 cards from 40 retailers, including 41 store-only cards, 23 co-branded cards and one debit card. Each of the 100 largest retailers (as defined by the National Retail Federation based upon 2016 sales) that offers a retail credit or debit card program was selected for study.