The changing economic landscape affects all aspects of our lives, including credit cards. Gone are the days when credit card companies would shower you with more irresistible Sugar Daddy deals than you could possibly keep up with, and you could almost earn a living collecting credit cards.
As the economic crisis deepens, credit card defaults are reaching historical levels. As a result, credit card issuers are taking steps to shore up their sagging bottom lines, and the rules of the credit card game are changing fast. Here are four credit card trends to watch out for.
1. Credit Score Requirements Will Continue to Tick Upwards.
When it comes to credit scores, Excellent is becoming the new Good. A FICO score of 700 or better used to be considered excellent credit, and would qualify you for the best credit card offers out there. That score has climbed and will likely continue to tick upwards. Nowadays, a FICO score of 720-730 is considered minimum for Excellent credit. At the lower end of the credit spectrum, while a score of 575 to 600 would have qualified you for a subprime credit card last year, going forward, that score may fall short of the mark.
What this means for you: Guarding your credit score will be more important than ever before. One little misstep can cost you dearly. Learn everything you can about improving your credit score, and play by the rules.
2. The Great Portfolio Purge Will Intensify
In the rise of increasing credit card defaults, credit card issuers are trying to shore up risk by targeting what they consider the black sheep of their credit card portfolio. People with high outstanding credit card balances, who only pay the minimum due each month, and sometimes pay late are considered to be high-risk card holders, struggling to meet their obligations. Card issuers have been hitting this segment of their portfolio by hiking interest rates and slashing credit limits—even for cardholders who have never had a late payment.
What this means for you: The Federal Reserve in December of 2008 introduced new regulations, which would restrict “anytime, any reason” interest rate increases. However, that won’t go into effect until July 2010. Until then, stay clear of the typical distress signals that card issuers look for: avoid using more than 50% of your credit limit at any time (preferably not more than 30%), don’t pay just the minimum due, and never, ever pay your bill late.
3. Fewer Balance Transfer Offers, More Traps
While we’ll continue to see both online credit card offers and mailed offers, there will be fewer, and the ones available will have more traps. Credit card marketers are experts in making a not-so-great deal look like a real steal, so Buyer Beware.
Balance transfer offers with a capped transfer fee are almost a thing of the past, and the 3% transfer fee is starting to push 4% for some issuers. In addition, credit card issuers are shortening the length of balance transfer offers to as little as three to six months.
What this means for you: The days of cruising from one great balance transfer offer to the next are over. Paying a 3-4% balance transfer fee for a 0% offer that lasts for four months is just not a good deal. Worse, if you’ve been in the habit of shifting balances between credit cards, you could get trapped, as credit card issuers continue to tighten lending criteria. Instead, focus on finding a few good low interest cards, and transfer your credit card debt to those.
4. Rewards Will Come at a Greater Price
As card issuers continue to look for ways to shore up their sagging bottom line, expect those great credit card rewards to come at a cost. Rewards credit cards notoriously have come with higher APRs. This trend will continue, and we’re likely to see ever increasing penalty fees for late payments and over-limit purchases. As card issuers get stingier with rewards, also watch out for rules that will cause previously accumulated rewards to expire faster.
What This Means for You: It will be more important than ever to not put any charges on your rewards credit cards that you can’t pay off in full at the end of the month. Use a low interest credit card for any revolving credit card balances you need to carry. If you have rewards accumulated on your credit cards, use them as soon as you can.
