Credit card companies want you back
Big changes are in the works for credit cards this year, as issuers try to make them more profitable.
With limits on their fees and interest rate hikes, credit card companies are trying to make money the old-fashioned way -- by getting you to borrow it.
Even those people who were dissed in recent years -- including people with not-so-great credit scores -- are being solicited as potential customers again. The message seems to be: Please don't be mad that we cut your credit limit, doubled the minimum payment due or canceled your card. It's 2011, so let's celebrate with more spending.
Why is this happening? Five major credit card issuers announced that their delinquency and charge-off rates are dropping at a healthy clip. Not so skittish anymore, they're ready to lend you money. The Wall Street Journal, which has details, reports:
The more that cardholders charge on their plastic, the more the companies earn by way of fees, so the amount customers spend is critical. Card loan balances -- and, as a result, revenue -- have been falling as companies, stung by steep losses during the economic slump, scaled back on credit and toughened lending standards.
Also, the Credit CARD Act and other reforms reduced the card issuers' ability to raise revenue from late fees and other penalties. So people who carry a balance -- and pay interest -- are very attractive to them.
Thus, look for lots more credit card applications in the mail, including for people with credit scores between 620 and 660 who've been ignored in recent years. In the fourth quarter of 2010, mailings to those with subprime credit scores jumped 90% from the year before.
But that doesn't mean you should bite. AnnaMaria Andriotis of SmartMoney reports:
Still, banks are hedging their risk with card terms that aren't all that favorable. The average interest rate for subprime accountholders is about 20%, up from 17.6% a year ago and nearly all of these cards come with an annual fee of $39 on average, says Odysseas Papadimitriou, chief executive of CardHub.com.
Are we headed down a familiar, washboard road? It's been reported that people who carry a balance on their cards are already spending more money these days. Do we ever learn? Post continues after video.
Here's what else you can expect from credit cards:
Changing rewards. "I think we will see some new rewards in the airline and reward points categories in an effort to take some market share from the increasingly popular cash-back cards category," wrote Curtis Arnold, founder of CardRatings.com. Expect some of the best rewards cards to come with annual fees in excess of $100.
Comparing rewards can tax your brain, and they're often changing. Ron Lieber of The New York Times warns, "When card companies advertise double points or flight points or triple miles, it is utterly meaningless until you know exactly what those points or miles will buy."
Higher interest rates. The CARD Act restricted increases on interest rates for current cardholders, so issuers are raising the rate for new customers. Also, since many card issuers converted from a fixed to a variable interest rate, watch your rate climb as the prime rate does. The national average for credits cards is now 14.72% (24.95% for those with bad credit), according to CreditCards.com's calculations.
Better balance-transfer offers. Look for 0% for 12 months or more, but beware of high balance-transfer fees. Jim Wang at our partner blog Bargaineering reported on the Discover More with a 24-month 0% balance transfer and a 5% balance-transfer fee with no maximum. Ouch. However, the Smart Balance Transfers blog says, "… the best balance-transfer offer in January is likely a special limited time 0% APR no fee balance transfer from Discover, the first fee-free balance transfer deal marketed online in over two years." Nice.
Plenty of credit card offers for college kids, despite the intent of the new law to protect the young and vulnerable. One reason is that card companies will accept student loans, scholarships and tuition help from home as "income." Jane Bryant Quinn explained further at CBS MoneyWatch that you can blame the Federal Reserve for writing lax rules:
Worse, your child is considered creditworthy as long as he or she can make the minimum payment on the card each month. That's the lowest standard possible, and opens the credit door to students whom the bank knows can't pay in full. … Finally, the credit card applications ask the students merely to state their income and tell the bank whether they have a checking or savings account. That's it. The Fed imposed no duty on the banks to verify.
Big changes for Citigroup cards. Lieber of The New York Times reports that the PremierPass, Diamond Preferred Rewards, Simplicity Rewards, Home Rebate and Driver's Edge Options cards will be retired, and the ThankYou, ThankYou Preferred, Premier and Prestige cards will take their place. (Lest you freak out, the rewards points will be transferred.)
Fewer cards with currency conversion fees. American Express is dropping the currency conversion fee for overseas transactions (including those you make at home on your computer) for holders of Platinum cards and the Black Card. (You likely don't have that one in your wallet.) Citi and Chase are also dropping the fee on some cards. Until now, Capital One has been the smart choice for overseas travelers.
What do you think? Are Americans going to go on another credit binge as lending standards loosen up, or have we learned from our mistakes of the last decade?
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