Good news arrived in the mail a few weeks ago from Citibank. And Discover. And US Bank. All were dangling a carrot in front of me also known as a preapproved credit card with 0 percent APR for 12 to 14 months. For a guy with more than $10,000 of unpaid new windows on order, it was a well-timed gift.
I’m not the only one on the receiving end of the nation’s banks these days. A barrage of credit card offers is a cyclical phenomenon, said John Ulzheimer, president of consumer education at CreditSesame.com. Sometimes the offers include 0 percent financing, but they can also be balance transfers or sign-on bonuses. The no-interest offers being distributed now are really a “Christmas in July” kind of gift.
“The banks realize we’re five months away, but they want to get them in your pockets and activated long before then,” he said.
With issuers courting consumers more heavily than they have in years, it’s time to review what’s changing and how best to take advantage of your credit cards.
If anyone needed more proof that the Great Recession changed people’s financial habits, consider that nearly 30 percent of Americans pay off their balances in full each month. That’s a 50 percent increase since 2008, according to the American Bankers Association. The ABA’s data said that more than half of Americans now have a credit score of 759 or higher, compared to 41 percent in 2008. Middle and higher-income families have contributed to a larger paydown in credit card debt, said Michelle Jones, senior vice president of CredAbility, a nonprofit credit counseling agency. “But lower income families still rely heavily on credit,” she said. “And that has not changed since the recession.”
Most Americans possess five to seven credit cards, and it’s a good idea to go online periodically and check the benefits and fees. Some will double the manufacturer’s warranty on purchases, up to one year or provide secondary car rental insurance at no extra charge when the card is used for the purchase. And anyone traveling out of the country should check the card’s foreign transaction fees. Most charge around 3 percent on any purchase not charged in U.S. dollars, but some don’t charge anything. (A quick check of my credit cards showed a range of 0 percent to 3 percent.) But also be advised that such cards as American Express or Discover may be less accepted in some parts of the world than MasterCard or Visa.
If you aren’t getting any tempting offers in the mail and you have good-to-excellent credit, it may be because you have opted out of credit or insurance offers. Go to www.optoutprescreen.com if you want to start getting offers again or want to stop a flurry of unwanted offers. But consumers can search online for a credit card to fit their current needs.
CreditSesame.com rates the best credit cards based on whether a person’s credit is excellent (750 or higher FICO score), good (700 to 749), fair (650-699), poor (less than 649) or new to credit. Then it subdivides them into the best offers for cash back, balance transfers, airline miles, student credit cards, 0 percent APR, low-interest rate and rewards. Credit.com adds cards for people with bad credit, secured cards, prepaid and business cards.
Consumers who don’t have a high credit score can’t raise their score overnight, but it is possible to raise it in short order. Those who plan to shop for a new home or auto this fall can start now to raise their credit score, said Gerri Detweiler, director of consumer education at Credit.com. It’s possible to raise a credit score 30 points in a month just by reducing the amount of debt on the cards as low as possible. A higher credit score can qualify a borrower for lower interest rates within reason. In general, it helps to have a balance of no more than 20 percent of the credit limit on any card. It may not help the person with a score in the low 600s but going from 720 to 750 will help, said Detweiler. “If you go from 730 to 760, you can qualify for super prime rates,” she said.
Consumers worried about fraud after recent data breaches can take some comfort knowing that a few issuers such as Chase and American Express have started embedding a chip into the card for extra security. Cardholders must input a PIN or sign for each transaction to be approved, making it more difficult for hackers. But Ulzheimer said the new cards, which won’t really take off for 24 to 36 months, are more of a benefit for merchants and issuers than for consumers. The Fair Credit Act caps the maximum consumer liability at $50 when there are unauthorized charges. But with chip and PIN cards, there will be an argument that if someone is irresponsible and gives out their PIN to friends or family willy nilly, why should the issuer be liable in that case? “The issuers will probably make the argument that consumer protections on fraud no longer make sense,” he said.
And the most misunderstood part of credit cards even among experienced users? Interest charges. Detweiler said consumers assume that if they carry an interest-bearing balance and then pay it off in full, they will have no finance charges that month. “If even $1 carries over, you pay interest on the average daily balance during the month,” she said.
John Ewoldt • 612-673-7633