Some retail store credit cards now carry APRs of over 30%

By Alicia Wallace, CNN Business

There has long been a threshold that few branded credit card issuers were prepared to exceed: the annual percentage rate of charge of 30%.

However, amid a rapid succession of blockbuster rate hikes by the Federal Reserve, those lines in the sand are being quickly crossed. At least half a dozen major retail credit cards – including those from Kroger, Bloomingdale’s, Macy’s, Shell, Exxon Mobil and Wayfair – recently increased their maximum APR to more than 30%, according to Matt Schulz, chief credit analyst for LendingTree.

“That ceiling is starting to crack,” Schulz said.

And that credit gets more expensive as high inflation forces US consumers to take on more debt.

Tuesday, the latest household debt and credit report from the New York Federal Reserve showed that US households racked up $16.5 trillion in debt during the third quarter and were swelling their credit card balances at a rate not seen in more than 20 years. The increases come amid strong consumer demand and higher prices for everything from mortgages to food to fuel.

“The biggest immediate risk could be that it makes an already expensive holiday shopping season even more expensive,” Schulz said. “And that’s the last thing people need.”

Consumers have increasingly relied on credit cards during this period of historically high inflation, but so far delinquency levels remain low by historical standards, according to the New York Fed report. . According to the report, in September, 2.7% of outstanding debt was in a default stage, compared to 4.8% in the last quarter of 2019.

“I tend to believe that [low delinquencies] won’t last much longer, but for now, it’s a testament to Americans’ resilience in the face of continued price increases and interest rate hikes,” Schulz said.

These retail card rate increases — which are often variable and apply to both new and existing balances — also come at a time when consumers are frequently being peddled for store credit.

“We know a lot of people will apply without fully understanding what they’re getting into, and that’s even more troubling this year than most,” he said. “Rates change so quickly that the brochure they have on the counter at your local store may not have the most up-to-date information.”

Retail credit cards, which can often come with perks such as a 0% interest rate for a certain number of months, can help consumers make larger purchases over time, said Ted Rossman, senior industry analyst at Bankrate and CreditCards.com. However, if consumers ultimately have to bear a balance, that’s when it becomes inconvenient and very costly, he said.

For someone who carried a balance of $1,000 on a credit card with an APR of 30% and above and only made the minimum payments, they would be in debt for 51 months and only pay $775 in interest, a he declared.

“Credit cards are like power tools,” Rossman said. “They could be really useful, or they could be dangerous.”

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