By Daily Mail (U.S.) | Created at 2024-11-25 18:46:57 | Updated at 2024-11-25 22:03:30
3 hours ago
Some of the largest retailers in the US raised the interest rates on their store credit cards this fall, ahead of the holiday shopping period.
At least 50 major retailers jacked up their ARP rates to record highs in order to protect their profits ahead of the Federal Reserve cutting interest rates in September.
Macy's, Nordstrom, Gap and Big Lots were among those that raised the interest they charge customers on their store-branded cards between September 2023 and September 2024, according to a report by Bankrate.com.
According to Bankrate's analysis, stores raised their rates just before the Fed began cutting in order to save their profit margins.
This is because the Fed's funds rate determines retailer's own interest rates, so they needed a higher starting point before anticipated cuts in order to maintain the same interest income.
The hikes mean the average interest rate on store credit cards is at an all-time high as we head in to the holiday shopping season - a time when consumers are more likely to take one out.
Big Lots, which filed for bankruptcy in September, raised its rate the most of any store reviewed by Bankrate, a full 6 percentage points from 29.99 percent to 35.99 percent.
The hike brought Big Lots to the highest ARP rate, alongside Burlington, Michael's and Petco, which also had rates of 35.99 percent as of September.
Retail giant Macy's was among those that hiked interest rates on their store cards
The second largest hike was made by clothes giant Gap, which raised its rate by 5 percentage points on its Banana Republic, Athleta, Old Navy and namesake cards.
'Up until this rate hiking cycle that we saw from the Fed in 2022 and 2023, 30 percent was a threshold that few credit cards dared to cross,' Ted Rossman, senior analyst at Bankrate told CNBC.
'But they've gone from high to higher these past few years because the Fed pushed rates higher by five and a quarter points and all of a sudden, 29.99 percent was not the high end anymore.
'Now we see it's very common for these store cards to charge over 30 percent.'
'If you get offered one of these this holiday season, really take a breath. I would just say no if you're going to carry a balance,' Rossman warned consumers.
'If you pay it off right away and you get the rewards, well, then, that works for you. But we hear many times people sign up for these cards and they don't even realize what they're getting into.'
The interest rates on store cards increased much more rapidly than traditional credit cards in the same period.
Store cards rose, on average, 1.52 percentage points between September 2023 and September 2024, while the average traditional credit card rate increased by 0.08 percentage points, according to the Bankrate analysis.
The second largest hike was made by Gap, which raised its rate by 5 percentage points
'If you get offered one of these this holiday season, really take a breath. I would just say no if you're going to carry a balance,' said Ted Rossman, senior analyst at Bankrate
'Store cards are big business,' Rossman explained, 'they can also be profit centers.'
He referenced a 2023 report by Citi analyst Paul Lejuez, who found 49 percent of Macy's operating profits in 2022 came from its credit card program.
'We work closely with our banking partner, Comenity Bank, to ensure APR adjustments are made responsibly and in line with overall industry standards,' a spokesperson for Big Lots told CNBC.
'Our goal remains to empower our customers to purchase what they need and pay over time, ensuring they have access to essential items without financial strain.'
Store credit cards have dipped in popularity in recent years, according to Equifax.
Many younger shoppers now opt for more popular buy now, pay later services to spread out bigger costs instead.
It comes after a separate warning that while saving money on store cards over the holidays may seem like an enticing offer, they are unlikely to be the best deal out there - and could even damage your credit score.
According to a blog by The Points Guy, store credit cards can lower that all-important credit score because they often have a small credit limit.
Credit scores are important because banks use them to assess creditworthiness when considering whether to give you a loan for a car, a home mortgage or a credit card.
Credit compilers like to see individual transactions on a credit card to be below 10 percent of the card's limit.
The lower the credit limit, the closer one in-store purchase might be to exceeding that.
