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Credit Cards in 2011: Higher Rates, Richer Rewards PDF Print E-mail
Written by CANDICE CHOI   
Thursday, 13 January 2011 05:32

A new breed of credit cards is on the way for 2011.

Tighter regulations, cuttingedge technologies and a growing willingness by banks to lend again are just some of the factors reshaping the credit card industry. For sharp-eyed consumers, the changes could present an opportunity to significantly lower monthly expenses.

To make the most of your plastic, here are the key trends to watch:

Cards Come Knocking

After clamping down on accepting new customers during the recession, credit card offers are cluttering mailboxes again. Mailings almost doubled to 2.7 billion last year, according to market researcher Synovate. That's after solicitations hit their lowest volume in more than 16 years in 2009.

And the offers are expected to continue piling up, particularly for anyone with a strong credit history.

The courtship of prime customers comes as those with less-than-stellar payment records lose their luster for card issuers. The shift is the result of several new regulations that limit how much card issuers can profit off of less reliable customers.

To start, late fees are now generally capped at $25. Card issuers can no longer hike interest rates without warning. And monthly statements now spell out the cost of carrying a balance, which is intended to motivate customers to pay down debt more promptly rather than rack up interest charges.

On the other hand, wealthier customers remain very profitable. That's because they pose little risk and tend to spend more. And banks collect fees from merchants every time customers swipe their cards.

So even as banks and credit unions start soliciting new customers again, they're not about to rubberstamp approvals for just anyone. The focus will be on big spenders with good credit.

Incentives to Switch

Balance transfer offers are getting more generous.

The idea behind such offers is that customers can lower their interest expenses; card holders are typically given a 0 percent rate for an introductory period as a reward for switching allegiances.

In the downturn, those periods were cut in half to about six months and sometimes even to as little as three months. But now issuers are expanding introductory periods to about a year again. Select premium Citi cards even offer periods of up to nearly two years.

The fees on balance transfers, which had gone up to 5 percent in many cases in the downturn, are now back down to about 3 percent as well, according to LowCards.com, which tracks credit card offers.

There are other little perks being offered as well. For example, American Express and Citi are courting those who travel often by getting rid of fees on purchases made abroad using certain cards.

Rewards Get Complicated

Richer rewards are another way card issuers are trying to attract more customers. But they're also passing on the costs through higher annual fees.

The result is that comparison shopping for rewards cards is going to be a lot more complicated.

Even within a single bank, there are likely several rewards cards to choose from. Once you get a sense of which card is the best value for your spending habits, you then need to compare it with the broader universe of rewards cards.

This could turn into a timeconsuming chore because of all the variables. Banks and credit unions not only have their own point currencies, but some also set caps on the amount of rewards you can earn. Others set expiration dates. And if you're late on a payment, some charge a fee to have points reinstated.

Higher Interest Rates

Even as card issuers compete for customers, expect available rates to be higher.

The average interest on credit card offers last week was 14.4 percent. That's up from 11.8 percent the same time a year ago and from 10.8 percent two years ago, according to Bankrate.com.

One reason for the jump? New regulations prohibit card issuers from hiking the interest rate in the first year of an account.

"So what issuers have done is raise the rates before you apply," said Bill Hardekopf, CEO of LowCards.com.

The exact interest rate available depends on an applicant's credit profile, however. So those with less-than-stellar scores are more likely to see higher rates while the best customers may not see as much of a difference.

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