Credit Cards

Avoiding the Worst of Credit Traps

Just as many consumers are struggling to keep their head above water financially, so are a number of credit card companies. New credit laws are changing how the business is run, more people are opting to use cash rather than credit, and credit companies are being forced to come up with new tactics and ideas to boost revenue.

Even with all the delinquencies and non-payments, it looks like the credit card companies may be recovering faster than consumers are as they are repositioning for growth. In their effort to increase their profit and ensure growth, companies within the industry are implementing new strategies that you, the consumer, need to be weary of in the following years.

Higher Credit Card Rates

New credit card laws prevent interest rates from being raised on old purchases, so issuers are warning they may just raise interest rates on every level.  For example, Bank of America launched a card that boasts simple terms, as it charges the same rate for transfers, purchases, and cash advances. However, the APR is currently hovering around 17.25%, which is a big difference from the under 10% rate that the bank used to charge.

Don’t be sucked in by marketing that discusses simplicity, as it could mean you end up paying a whole lot more interest in the long term.

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Switching to Variable Rates

It was commonplace for credit cards to charge a fixed interest rate only a few years ago, but now it appears to have swung in the opposite direction. In fact, now close to 85% of cards carry a variable rate, which means that consumers are going to see their rates start skyrocketing when prime rates go up.

This credit change seemed to come about in a hurry, and before many consumers could even understand what was going on. Many issuers made the switch just before new provisions were implemented that demand 45 days of notice for any changes in terms of rates.

Increase in Annual Fees

New credit laws have backed credit issuers into a corner concerning fees pertaining to customers going over limits and other hidden costs, but they are definitely moving towards finding new ways to fund their bottom line. Instead of adopting new fees, they seem to be slowly switching over to annual fees that are higher and larger interest rates.

In fact, fee based credit cards are now making up about 27% of the market, compared to the 18% just last year. While these fees offer more simplicity for consumers, they often translate to larger costs in the long run.

Upped Usage Fees

Many credit issuers understand that an annual fee is a big negative in the eyes of many consumers, so some companies have become a little more creative and now are implementing usage fees.  With certain cards now, you may have to spend a certain amount of money in order to avoid extra charges. That is a definite lose-lose situation for anyone that is carrying a balance on their cards. Keeping your balance low will cost you a monthly fee, while using your card more will cost you more in interest.

Junk, Junk, and More Junk Mail

In many ways, credit card issuers have dramatically cut back on the amount of new card offers that they send out, but if you have decent credit and are in good standing, you are sure to see a whole lot more offers sent your way. As companies try to remain as profitable as possible, they are turning to their more affluent and reliable customers.

For instance, JP Morgan Chase established a new rewards card that is aimed specifically at high income consumers that offers a 0% APR in order to grab the affluent away from its competitors.

Banks are starting to market specific households and how much they can offer and sell them, rather than focusing on one or even two products alone. Get ready for more offers, more products, and more envelopes stuffed with interest-laden incentives.

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Jumping Through Hoops

Rewards programs are incredibly popular with credit card consumers, but they are costing banks quite a bit of money to run. If they stop the programs altogether, there could be backlash, so what solution is there for issuers?

They are now starting to introduce fees for each time a consumer redeems a reward or shorten the period in which rewards can be claimed. A classic example of this is what happened with frequent-flier programs. Consumers have been forced to meet all kinds of standards and jump through a never ending line up of hoops in order to cash in on the free flights that they have earned.

Credit issuers often seem to be ahead of the game, and while new policies and credit-laws are aimed at protecting the consumer, you still have to be weary of the options that surround you. Read the fine print, comparison shop as much as you can before deciding on a certain card or program, and avoid getting duped into a program that will cost you more money in the long run.

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