CALIFORNIA, USA — Just when you thought things couldn’t get more expensive, interest rates on store credit cards are on the rise.
Some stores are now charging more than 35% interest on credit cards. This is happening as more Americans are going into credit card debt.
A new study by Bankrate shows two in five credit cardholders, or 37%, have maxed out a credit card or are close to it. An expert shares why rates are high and what’s being done about it.
“It’s very understandable, I think, to be upset about this,” Derek Stimel, an economics professor at UC Davis said.
Stimel said interest rates on store credit cards are the highest they’ve ever been since the Federal Reserve has been tracking this.
“We’ve had high inflation in the United States. To combat that inflation, the Federal Reserve has basically been raising the interest rate that it controls, and when it raises that interest rate, it basically permeates to all the other interest rates in the economy,” Stimel said.
A new study from Bankrate shows interest rates on 108 store cards reached a record high.
The average rate on a store card was 30.45% up from 24.35% in 2021.
The highest APR the study found was 35.99% at several stores including Petco, Big Lots and Michaels.
The study also finds you’ll be charged 34.99% at 13 retailers including JC Penny, TJ Maxx and Walgreens.
Credit cards are a type of loan, and the interest is where card companies make money.
“From their point of view, anything that’s going to make that loan a little bit riskier, they’re going to think about. One thing the lender will do is raise the interest rate on that loan,” Stimel said.
The Consumer Financial Protection Bureau’s push to lower late fees from an average of $32 to $8 was earlier this year. That’s still going through the courts, but it’s potential impact is being felt now.
“There’s sort of two ways the credit card issuers think about this, right? One is: well, if I’m going to lose revenue from the late fees, I need to make up that revenue somewhere else. Maybe I’ll charge a little bit higher interest rate on my credit card,” Stimel said.
What’s the best way to use these credit cards?
“If you can, when you use your credit card pay the bill when it comes. Don’t carry any balances on it because when you do it, you’re not exposing anything to those interest charges,” Stimel said.
The increasing cost of borrowing money might make those “Buy Now Pay Later” plans seem more appealing, but remember banks like Chase are now banning customers from using their bank credit cards to purchase things on a “Buy Now Pay Later” plan.
However, there are a few situations where retail cards could work for you. Some stores like Target and Best Buy offer 5% cash back.
Experts say if you’re a loyal shopper who pays off your balance in full and avoids interest, using a card like that might work for you.
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