We've all been tempted by the immediate benefit to save 10% or maybe even 15% on your current purchase when you apply for the store's credit card. But this is not a wise financial move for most consumers.
Most retail stores offer credit cards with interest rates between 23% and 30%, much higher than bank-branded credit cards. According to the www.LowCards.com Weekly Credit Card Rate Report, the average advertised APR last week among the nation's 1000+ credit cards was 14.04%.
Some cards, such as the Napa Auto Care Easy Pay and the Lane Home Furnishings Credit Card, are charging a jaw-dropping 30% interest on credit card purchases. Both Goodyear and Zales have 28.99% APR on their cards, Office Depot Personal Credit Card charges 27.99%, Sears charges 25.24%, and Macy's credit card has a 24.50% APR.
Retail cards, also known as private label credit cards, carry higher interest rates than bank-branded cards because they tend to be held by riskier borrowers with fewer credit options. Issuers suffered significant losses on these private label cards during the financial crash of 2008. In fact, General Electric and Citigroup, two of the largest issuers of private label cards, indicated that they wanted to sell off their private label business, but both failed to find a buyer.
But in the past year, default rates have dropped significantly and private label cards with high rates are more appealing for banks and issuers that need the revenue. According to the Wall Street Journal, Wells Fargo is considering getting into the private label business. Packaged Facts forecasts receivables for private label card programs to reach $152 billion by 2015 (down from the pre-recession of $156 billion in 2007).
There are plenty of reasons to avoid these retail credit cards:
Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.
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