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Retail Credit Cards Have APRs as High as 30%—Here's Why They're Typically Not Worth It

@bea.revay via Twenty20

From one-time discounts to generous cash-back offers, retailers are often angling to get customers to sign up for their own branded credit cards. These can help stores encourage repeat customers by incentivizing them to come back and spend more money, but they are known for offering less-than-stellar terms.

While the average non-retail credit card has an APR of 19.92%, the highest retail card APR of 2021 is 29.99%, offered by retailers including Big Lots, Guitar Center and Kay Jewelers, according to research from CreditCards.com, which reviewed credit card offerings from the U.S.'s 100 largest retailers that offer their own cards.

These cards can be hard to avoid: 7 in 10 customers who signed up for retail cards did so on impulse at checkout, according to a survey of 2,226 U.S. adults conducted by CreditCards.com from Sept. 15-17.

Not only are customers "a captive audience" in the checkout line, but these cards are appealing in the moment because they more often than not offer a discount on the purchase you are about to make, says Ted Rossman, CreditCards.com senior industry analyst. In fact, more than half of all people who applied for a retail card were enticed by a discount or promo offer, the survey found.

"The store is looking to build loyalty," Rossman says. "They often offer better rewards at purchases with their own stores [than at other retailers]."

But these rewards can distract you from the fact that, overall, the card may just not be that good.

Beyond high interest rate considerations, Rossman says that consumers should factor in the opportunity cost of signing up for a retail card over an all-purpose card from an issuer like American Express or Visa. An all-purpose card may not give the same reward in the moment, but could offer better benefits overall.

"The best bank-issued cards typically require you to spend a few hundred or few thousand dollars in the first few months to get their sign-up bonus," he says. "Even if a store offers you rewards, is the long-term benefit of the card as good as putting that exact same purchase on a general purpose card?"

People who tend to carry a balance should ignore retail cards altogether, Rossman says. Some retail cards offer 0% interest for a certain period of time, but then charge deferred interest payments if the card is not paid off by the time the trial offer ends, which Rossman calls "a particularly nasty tactic."

Consumers should also keep their credit score in mind when weighing whether or not to sign up for a retail card. While a discount offer might be tempting, it may not be worth the temporary dent it will make in your credit score when you apply.

But more than anything, Rossman says that it's the interest rates customers should worry about.

"I would argue it almost doesn't matter if we're talking 30% or even 25%," he says. "These rates are really high and I would advise people to avoid them if at all possible."

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