In 2008, the credit card industry experienced huge financial troubles, which were the result of aggressive lending to almost anyone with a name or an address. Banks and credit card companies tried to reduce losses by toughening their lending standards, cutting credit lines and increasing interest rates. This was a blow for all consumers, irrespective of their credit scores, and many cardholders are wondering what new regulations, strategies and penalties are awaiting them in 2009. Some financial experts have shared their credit card predictions and here is a summary:
• A few years ago card issuers targeted increasing the number of credit card applications in order to get as many consumers involved as possible. Today they are slashing their mass mailings and closing some of their marketing channels, including affiliated websites. Their shift from pursuing quantity to quality, which began in 2008, is expected to continue throughout 2009.
• Credit card companies may continue to scale back their 0% introductory APR balance transfer offers. Formerly, a 0% introductory rate for twelve months was an excellent way to entice consumers to transfer their balances from another creditor. However, in 2009, the introductory rates are trending higher and the initial period may be shortened to three months instead of the six, nine or twelve months that were previously common. Also, a 3% transfer fee will be charged by the majority of balance transfer offers. Also, your ability to qualify for a balance transfer card will now depend on your FICO scores and your ability to take on more credit.
• Card issuers will keep raising credit card APRs on accounts that they consider at risk of default. If your credit score drops a few points for any reason, the issuer may raise your APR immediately. Also, if you have several cards with a universal default clause, their APRs are likely to increase substantially. The practice of arbitrary interest rate increases will continue until the summer of 2010 when legislation takes effect to reduce this practice. Until then, do your best to maintain or improve your FICO score to avoid paying sky-high penalty rates.
• Since issuers are currently trying to minimize their lending risks, it may be very difficult for customers with less than fair credit to even get a credit card.
• Lending institutions might be willing to provide assistance to indebted consumers and work out a repayment plan for them. After experiencing huge write-offs over the past two years, creditors now acknowledge that collecting some portion of the debt is better than losing the whole amount due. Helpful measures offered some customers may include: waiving late fees, reducing interest rates, or even forgiving part of the debt. However, the fact that the consumer resorted to a debt repayment plan may cause a considerable drop in their credit score.
Above are some of the most common predictions for the credit card industry in 2009. However, no matter what new regulations, limitations or penalties occur; some good advice will always apply to credit card accounts: make each credit card payment on time and pay off high-rate balances as quickly as possible.