The credit industry is sure resilient. Before the financial crisis hit, we were seeing a time when it was incredibly easy to secure a credit card or a loan. When you faced a lender, the only requirement you really needed to fulfill was that you had a pulse. But after the credit crisis arrived along with a collapse in the stock market and a bad economy, things changed drastically. It got pretty tough to secure credit.
Let’s look at history here a moment shall we? A lot of folks wailed that the credit crisis changed their lives quite a bit. The swing from loose credit to tight credit affected most consumers who relied on plastic for their daily spending. Here are some thoughts by Steve Sildon, Senior Editor for Credit Card Assist; he’s kindly shared some of his musings with us on the changes felt by the credit industry:
Up until recently, I had felt somewhat immune from the crisis. I had a pretty steady job, a pretty modest mortgage payment….everything just seemed peachy to me. So, what credit crisis was everyone talking about? Then one day, my credit card company closed my credit card account because of “inactivity”. Soon after that, I got another statement from another credit card issuer that my credit line was being drastically reduced on yet another account. That’s when it started to hit home for me — that yes, changes were happening with credit cards that are affecting us all negatively.
The simple fact is that all of the reliable sources of loans for many banks and credit card issuers have simply just vanished… almost overnight. In many ways, just like the mortgage market, the credit card market has also come to a sudden halt. Card issuers have made it much tougher to get approved for cards, credit lines have been slashed, and interest rates and fees have suddenly been jacked up. Card issuers are even shutting off access to their most credit worthy customers.
Those were our observations during the worst part of the credit crisis. But strangely, it seems like the pendulum has shifted again — towards the other direction. It’s been a while since we’ve focused on the health of the economy, but from all the signals I’ve been receiving, it seems like things have recovered fairly decently and people are once more upbeat about their job prospects, investments and finances. This is the case in my neck of the woods, where tech jobs are bountiful at this time.
I am, however, pretty curious about what’s happened in the credit environment. We already know about the changes that have been brought about by the Credit Card ACT, but having it swing from one extreme to another can leave many consumers wondering about what they can expect from their issuers these days. The good news is that the credit industry seems to be operating in a more moderate fashion — neither restrictively nor aggressively, but rather, in a Golidlocks zone. Would you agree?
What I mean is that credit lines, offers and such seem to be bouncing back, and making quite the return in my junk mail (and in some of my own relationships with card advertisers through this blog), albeit not as strongly as before. This, to me, indicates that the credit industry is well on its way to conducting business as usual.
Image by Wall Street Journal
Credit Card Benefits, Rewards and Features: The Changes
As consumers, it may be a good idea to review the types of adjustments that were made over the past few years in the world of credit. We never know when these things can happen again. Here’s a quick list of what occurred after credit got tight:
- There were stricter requirements in place in order to qualify for credit.
- The generous 0% APR terms, which used to be standard features, are now offered with care.
- Fees for balance transfer credit cards are now standard. A card without a balance transfer fee is typically a special, limited time offer.
- Rewards programs may not be as generous as they used to be.
Let’s go through this in more detail below.
1. The Availability of Credit
Let’s be honest. We’ve all gotten used to easy credit. Way back when, anyone with a pulse could have fallen off a truck and qualified for a credit card. It was literally that easy. The “Wild West” of credit card marketing was fast and loose. Underwriting standards for credit cards were lax (to say the least) and card issuers profited handsomely from it. But once the economy started to fall off of a cliff, card issuers began to back pedal on many of their policies and marketing practices by reversing and even eliminating features and benefits on credit cards that all of us just assumed would be around forever. But as things start to improve in the economy and the credit industry, we may begin to notice the return of card products and advertising on this front. Whether it will be the “Wild West” again, remains to be seen. I don’t believe we’ll be seeing it quite that way again, but rather, we’ll see a return to a more normal marketplace when it comes to credit.
2. End of 0% APR? Not Exactly.
Before the credit crisis, the “0% APR introductory on purchases for 12 months” was a feature that was practically a standard for new credit card offers. But when the crisis hit, card issuers decided to get rid of the feature entirely, such that cards that still had a 0% APR offer were restricted in a big way. During times of tight credit, these card offers will have their terms adjusted accordingly: for example, the attractive introductory offers are only made available for 3 to 6 months. So for even the most credit worthy borrowers, zero percent offers could be limited to much shorter periods. But surprise, surprise! Once the credit industry regained their footing, those 0% APR features have come back, with one year offers becoming the norm once more. I’m now seeing 15 month to 24 month zero percent offers on the table!
3. Balance Transfer Fees
Balance transfer offers have seen changes as well. In the past, it was common to see “0% on balance transfers for 12 months” with no fee. Similar to changes that happened with the 0 APR feature, balance transfer offers are also going through their own evolution. Card issuers may have become stricter about whom they qualify for a balance transfer. They may only give it now to their most creditworthy borrowers.
And what about the fees? In the past, most card issuers wouldn’t charge a fee to transfer a balance either, but that all started to change in 2008. Most card issuers retired their no balance transfer fee policies and started charging transfer fees (typically a minimum of $5 or $10, between 3% to 5% of the balance transfer amount). Also, in the past, these transfer fees usually had a “cap” or maximum fee of up to $75. But now, the tide has turned completely on these charges — a 3% balance transfer fee with no cap or no maximum is now standard practice. So now, when dealing with major credit card issuers, if you transfer a $9,000 card balance to a 0% introductory offer, it may cost you $270 right off the bat. Ouch!
4. Modifications To Rewards Programs
Rewards programs are also changing for us cardholders. According to CNN personal finance blogger Gerri Willis, rewards programs that provide cash back rebates, airline miles and other travel perks are being scaled back to some degree by card issuers, who are scrambling to protect their profitability.
Some of the changes may include:
- Higher spending “floors” that require more spending to start earning points.
- Higher point requirements for redemptions on travel perks and rewards.
- Much shorter expiration dates on points and rewards.
The rules for rewards programs have always been complicated and open-ended, giving card issuers wide latitude to make changes without any of us cardholders really knowing that it’s happening. For instance, in the past, you may have always been able to stockpile your rewards points for a big redemption. Whether these were from cash rebate credit cards, gas credit cards or other specialty cards, you could always save your points for a big ticket item or upgrades on airfare without too much worry about changes that might diminish their value. But that may not necessarily be the case at all times. Point values may be devalued by card issuers so the points are worth less than when they were first earned. If this happens, it’s sort of like paying for a dime and getting a nickel in return.
These rewards programs can change at anytime. My advice to cardholders: avoid stockpiling your points. There’s simply no way to guarantee that your points will be worth their face value if you take a chance and wait to redeem them. So, all you cardholders who’ve earned rewards points should redeem them quickly. Their value will only continue to diminish as card issuers leave no stone unturned.
One thing we need to realize as credit card holders is that our credit card terms and features are not etched in stone and when we enter into a relationship with card issuers, things can change overnight. It’s easy to become complacent about our credit cards as we take for granted the benefits we get from using them. However, expect things to be dynamic when it comes to the basic features of your card. This is what I come away with as I track the card industry.
So, how have all of you been affected by the changes happening in the credit card world? Have you noticed any improvements with the availability of credit lines? Or has your credit line been cut? Has your rewards program disappeared? How easy is it to get approved for a credit card these days? I’d be interested to hear your thoughts!
Created: April 2, 2009; Updated: May 4, 2011
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