Store-Branded Credit Card Interest Rates Rise to Record Highs

A number of U.S. retailers quietly raised interest rates on their store-branded credit cards between September 2023 and September 2024. A survey of 100 large retailers conducted by Bankrate uncovered about 50 companies that boosted credit card annual percentage rates (APRs) to record highs.

Among the list of retailers are Big Lots, Petco, Burlington, Gap, Macy’s, and TJX Companies. Big Lots, which declared bankruptcy in September, topped the list with the largest rate increase — from 29.99% to 35.99%. Gap raised rates on its Athleta, Old Navy, Banana Republic, and namesake cards by 5 points, going from 29.99% to 34.99%. In third place was Petco, adding 4.5 points to its store credit card.

“Up until this rate hiking cycle that we saw from the Fed in 2022 and 2023, 30% was a threshold that few credit cards dared to cross,” said Ted Rossman, Bankrate’s senior industry analyst, per 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% was not the high end anymore. Now we see it’s very common for these store cards to charge over 30%.”

Why Are Store Credit Card Interest Rates So High?

In general, store credit cards are easy to obtain. Many applicants qualify for one even with poor or limited credit history. However, this creates added risk for credit issuers. As a result, these companies charge a higher APR in an effort to hedge the risk.

Managing risk is one thing, but profit is another. Store credit cards bring in a significant amount of revenue for issuers as well as retailers. For instance, 49% of Macy’s 2022 operating profits reportedly came from its credit card business.

In addition, retail stores often get compensated by card issuers for finding new customers and sometimes even get a share of the interest payment or any late fees. Of course, the retailers also benefit when a short-on-cash customer buys a product with credit, when they might not have otherwise.

Now that the 2024 holiday shopping season is ramping up, consumers will be bombarded with store credit card offers. With interest rates at an all-time high, shoppers should remain cautious about getting a discount on an item in exchange for applying for a store credit card. The amount one saves from the reduced price might be paid several times over through a high rate on the card.