Take note and use these six strategies that credit-card issuers are using to lift their bottom lines:
1. Higher rates for everyone- Unable to increase interest rates on past purchases under the new credit-cars laws, card issuers warned that they may have to start charging higher interest rates across the board. Take the new BankAmericard which launched last week for example. They state, “simplified rates and terms,” including charging the same interest rate for purchases, cash advances and easy balance transfers. Although its annual-percentage rate is currently 17.25%. That’s higher than the 9.99% plus-prime that issuers like Bank of America, Citi and Chase used to charge. So unless you’re among the 10% or so of card holders stuck paying off that expensive cash advance or balance-transfer offer, you’ll end up paying a lot more interest with this card.
2. Moving from fixed to variable rates– Three years ago, more than 80% of all credit cards charged a fixed interest rate. Now, 80% to 85% of credit cards carry a rate that will let you change. Making the switch is no walk in the park. The majority of issuers switched over the past 12 months and many did just weeks before the new credit-card law that requires a 45-day notice of any change of terms went into effect.
3. Annual fees– The new credit-card law has lead banks to rethink over-limit fees, as exceeding one’s limit will soon become an added feature as well as reintroducing others. Offers for fee-based credit cards mailed to consumers rose significantly during the first quarter of this year to 27% of all offers, up from 18% a year ago, according to Synovate Mail Monitor, which tracks credit-card mailings.
4. Usage fees– An annual fee can be a big turn-off for consumers. To avoid a user backfire, some issuers will get creative with how they charge usage fees. One possibility may be joining fees to card usage. You may be required to exceed a certain spending threshold to avoid an extra charge. That’s what you call a lose-lose situation for anyone carrying a balance. Raising your card usage will cost you more in interest payments, while keeping it low will cost you an annual fee.
5. More junk mail– It’s no secret that card issuers have cut back on the junk mail offers. But if your a customer of good means and credit, chances are those envelopes will keep coming. As card issuers seek ways to become profitable, they’re focusing on their best and most affluent customers. We might be seeing a fundamental shift in which banks will approach managing the relationship with a customer and it will be on a household basis rather than a product basis. Ask the questions, what’s the risk of the household? What are the other products we may sell them?
6. Reward hoops– Rewards programs are expensive to run, yet they are so popular with consumers that getting rid of a program could create a public disaster for any issuer. Some are getting around the problem by introducing vast changes, such as fees for redeeming awards, making rewards more expensive. Think about what the airlines did with the frequent-flier programs. They’ve created more challenges for getting free flights.