Credit card options becoming more limited
July 15, 2009 by admin
Consumers shopping for a new credit card or looking for a balance transfer promotion, are going to find fewer options and less perks to open new cards in today’s economy. The credit card industry has been reducing their marketing and promotions for new customers since the beginning of the year, and major banks have started to change their card terms, increasing rates and fees following the implementation of the credit card reforms from earlier this year.
According to a report from CBSmarketwatch, the next area under scrutiny will be the availability of a fixed rate credit card offered to consumers. Credit cards are traditionally offered to consumers in two forms, fixed rate or variable rate cards. Fixed rate cards are appealing to consumers who may occasionally carry a balance as the consumer will fully understand the potential interest they will be paying until their balance is repaid in full. Variable rate cards are structured to offer consumers interest rates that will adjust up and down typically with a margin (fixed percentage amount) that is added to the prime rate. Most promotional credit cards that are offerd to consumers (balance transfer cards, zero percent cards, etc) are cards that have variable interest rates.
The recent move by credit card companies to shift their offering to variable rate cards reflects their long term potential to make more interest from charges that will occur moving forward. Variable rate cards today offer extremely enticing rates for most borrowers with good to excellent credit. The cards are taking advantage of the historically low prime rate (3.25%), which allow for many cards to be offered well below ten percent as a starting point. The card companies stand to benefit greatly as they anticipate that the prime rate will likely head up in 2010 and in doing so bring the rates up on variable rate credit cards. Credit card companies are looking at every possible angle to try to recoup potential lost revenue from the regulatory reforms the government placed on the market earlier this year. Many card companies have raised the fees on balance transfers, increased consumers interest rates or reduced balances available on existing cards accounts.
Consumers who are in the market for a new credit card will need to take additional steps to ensure they are applying for the best card for their financial situation. In today’s marketplace where credit is harder to obtain, and bank fees are higher on balance transfers, the ability to keep opening new promotional cards and transferring balances for limited periods of time will be significantly less opportunistic. Consumers who are shopping for a fixed rate credit card will find that almost every bank still offers these cards, but they may be limited to certain credit worthy borrowers. In some situations, it may be more advantageous to choose a variable rate card if the card carries a low margin or if you traditionally pay off your card balance in full at months end. Credit card companies are likely to continue marketing new card offers and attempt to bring on new customers, so taking advantage of promotions will need to be fully analyzed in the application process.