Popular stores like Walmart, Target, Home Depot, and Kohl's have long issued their own credit cards to encourage customer loyalty. Now, with the US economy improving, retailers are issuing more and more credit cards to a broader base of customers.
Data from consumer credit bureau Equifax reveals that credit card lending to subprime borrowers (those with low credit scores) surged 14% from 2010 to 2012. Raw numbers show 13.8 million newly opened credit card accounts at retail stores. From 2011 to 2012, the total number of retail credit cards outstanding grew by 10%.
Retailers are also issuing cards with higher credit limits. This year, the average credit card came with a credit limit 16% larger than the year ago period. Higher credit limits are associated with greater confidence in a customer’s ability to repay their balances. While credit limits are on the up and up, utilization rates have dropped, indicating that spenders are still wary of holding higher balances on their cards.
Most impressive is the rate of change in total credit card limits. From June to July 2012, credit card limits at retail stores surged from $290 billion to $320 billion. This coincides with slightly higher credit card spending in the summer months, but no link can be drawn directly from higher credit card lines in the retail category to greater overall spending.
Many retailers believe that store branded credit cards help companies retain customers in a competitive environment. Clothing stores like Old Navy and Kohl’s solicit credit card use with coupons that can be redeemed only with one of their store credit cards. Target gives customers as much as 5% cash back and discounts on merchandise charged to a Target card. For individual stores, retail credit cards often have better rewards than cards that can be used at any store or merchant.