6 money predictions for 2012
Credit scores and access to credit should improve this year. And expect your bank to push prepaid cards.
This post comes from Odysseas Papadimitriou of Card Hub.
With an upcoming presidential election and a continuing financial crisis in Europe, it's fair to wonder what 2012 holds for our wallets.
Will the U.S. economic recovery continue, bringing with it more jobs and increased stability, or is a new recession in the cards? In the absence of a crystal ball, we can make only educated guesses, but that's more than sufficient to garner a sense of what we're in for in the coming months. So, to help give you the requisite foresight to effectively handle whatever is in store, here are six money predictions for 2012:
As employment rises, so too will credit scores. Given that payment history constitutes 35% of your FICO scores, it's only natural that when employmentrises, more people are able to meet their monthly obligations and credit scores eventually rise as well. With unemployment recently reaching a nearly three-year low, credit scores will rise in 2012, making it easier for more consumers to obtain loans and lines of credit, buy homes and cars, get cheaper insurance premiums, etc.
Access to credit will improve. Individual consumers weren't the only ones feeling the squeeze of a tough economy during the worst of the Great Recession. Corporations were as well, and that includes credit card companies. Saddled with lots of charged-off debt, they had to tighten their underwriting standards, which made it impossible for many consumers to benefit from the convenience of credit card use.
Now that things are trending up, credit is less scarce, and consumers will find it easier to get unsecured credit cards and loans this year. (Compare unsecured cards here.) This is unquestionably a good thing, but we must remember not to take on more than we can manage. Post continues below.
It will still pay to sign up. Piggybacking on the point made above, the strain that credit card companies felt as a result of customers defaulting on their financial obligations has led them to drastically increase their recruitment efforts for the 50% of consumers that still have good or excellent credit. The main tools employed in doing so have been credit card offers with 0% APRs for as long as two years and/or hundreds of dollars in bonus rewards.
While initially believed available for only a limited period of time, these credit card deals (find deals here) have persisted and should continue to do so through 2012, which means you will still have an opportunity to take advantage of them if you have yet to do so.
Prepaid cards will rise to prominence. When banks announced their intention to test or implement new checking account fees, it was big news. No one wants to pay for something that has long been free, after all. But with the Federal Reserve capping the debit card swipe fees that banks charge merchants, thereby costing them roughly $9.4 billion in annual revenue, something has got to give. Unfortunately, it seems likely that it will be debit card rewards and free checking.
That's why prepaid cards are poised to make a big splash in 2012. Not only are they more profitable for banks than traditional checking accounts, but they're also apt substitutes, because they basically have the same features, minus the ability to write physical checks. (For more, read "Ditch your checking account and save.")
There won't be any new personal-finance legislation. While the Credit CARD Act increased transparency and consumer rights in the credit card industry, the new rules it introduced took some getting used to. Can my interest rate change? How are my payments allocated? How are late fees determined? These were among the questions that we had to answer after the passage and enactment of the CARD Act. But with 2012 being an election year, it's safe to say that there will be no awkward legislative "get to know you" period this year.
Europe will stand pat. Judging from recent European economic history as well as the sheer breadth and complexity of the fiscal issues on the continent, it's unlikely that any comprehensive long-term solution will be reached. It's also unlikely that the European Union will let any of its member states fail. That's why we're like to see some sort of stopgap measure that preserves the euro, safeguards the teetering southern Europe nations and does not interfere with Germany's trade dominance. The European debt crisis will therefore have no additional negative effects on the U.S. economy this year.
Odysseas Papadimitriou is the founder and CEO of Card Hub, a leading online marketplace where you can compare credit cards and sell gift cards.
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