But you might want to think twice before agreeing.
As the Federal Reserve hikes interest rates, credit card annual percentage rates — a measure of the annual cost of borrowing money — are climbing higher. This is especially true for retail credit cards, which tend to charge more.
The most expensive retail credit cards can have an annual percentage rate of 30.74%, according to Ted Rossman, a senior industry analyst at CreditCards.com, who calls the rate “crazy high.”
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Meanwhile, the average retail credit card charges 26.72%. Many other cards charge 29.99%.
Credit card interest rates more generally recently rose to 19.04%. That rate is the highest since Bankrate.com began tracking them in 1985, according to Rossman.
For retail credit cards, there has long been an unwritten rule among issuers that they won’t exceed the 30% annual percentage rate, likely for fear of scaring off potential customers, according to Matt Schulz, chief credit analyst at LendingTree.
“Given how quickly the Fed has been raising rates and how often, we’re finally starting to see that ceiling crack a little bit,” Schulz said.
Even consumers grappling with historically high inflation may be tempted to open these lines of credit to give their vacation budgets some leeway. More than a third — 35 percent — of respondents to a LendingTree survey said they’re at least somewhat likely to apply for a store credit card this holiday season, up from 29 percent a year ago.
But experts say you should weigh the pros and cons carefully before applying.
The value of an offer of 15% to 20% off your first purchase could be overshadowed by a higher annual percentage rate.
Also, if you fail to pay off your balance each month, you may have to pay expensive charges to your balance. Additionally, there are other factors to consider in determining whether premiums will pay off.
1. Consider the opportunity cost
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When it comes to retail credit cards, there are generally two types: lines of credit that apply to a specific retailer, or other cards co-branded with credit card providers like MasterCard or Visa that can be used more generally.
For a single-brand card to make sense, it should be a shop you visit often.
“You have to be a repeat buyer to make it worth it,” Rossman said.
If you’re making a large purchase, such as buying several new appliances, the discount could be significant, as long as you’re able to pay off the balance before accruing significant interest, Rossman said.
Still, you might want to consider whether rewards using a more generic card might be more generous or better match your spending style, she said.
2. “You understand what you’re getting yourself into”
Opening a retail credit card can be a snap decision when checking out at the store.
But before accepting the offer, you should do some due diligence, according to Schulz.
“It’s really important that you understand what you’re getting yourself into before applying,” Schulz said.
If the checkout offer sounds appealing, go home and research what it entails, especially regarding interest and fees. So if you still want it, you can still claim it next time you’re in the store.
That way, you’ll make a more informed choice and be less likely to regret your decision, Schulz said.
3. Be wary of deferred interest
As inflation continues to soar, reaching 8.5% in the US in March, it’s important to find ways to protect your savings.
Some store credit cards offer what is called deferred interest, with an introductory rate of 0%.
Notably, if that deadline passes and you have an unpaid balance, the credit card company can go back and charge you for any interest you would have accrued, Rossman noted.
“Be especially careful if a store card offers a deferred interest promotion,” Rossman said. “That retroactive interest can really hit you.”
4. Deal with unpaid debts
It’s not just new retail cards that charge higher interest rates. Borrowers with existing retail credit cards could also see the fees they charge rise soon, Schulz said.
As interest on unpaid debts also increases more generally, credit card holders would do well to take a few steps to reduce their charges.
First, try to pay off as many balances as possible, according to Schulz.
Next, consider a 0% balance transfer card.
“It may be the best tool you’ll have in your toolbelt for fighting credit card debt, because it can give you up to 21 months without accruing any interest,” Schulz said.
Those offers may not be as generous as the loan market shrinks, which could include higher one-time balance transfer fees or shorter durations for the 0% rate, Schulz said.
Finally, simply try asking your current lender for a lower annual percentage rate.
A LendingTree survey from earlier this year found that 70% of those who tried this were successful. But the key is you have to try, Schulz said.
“People don’t realize how good their chances are of getting a rate cut if they take the time to call,” Schulz said.