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.
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.
Final Thoughts
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
Copyright © 2011 The Digerati Life. All Rights Reserved.
{ 10 comments… read them below or add one }
Something else really interesting is that now AMEX is letting card holders who already have closed their accounts, still spend the points accumulated for the next 90 days! Usually the points are forfeited when a card is closed. AMEX holders who find it makes sense to get rid of it should call American Express to see if they qualify for the plan.
Are there any other lenders offering this deal on closed accounts?
These deals make sense if they are trying to help the user spend a bit less since all the enticing features are removed but at the same time, aren’t the people who spend without worry the people who balance out the world?
Credit Cards are dangerous things, and being reliant on them (to the extent of using one to pay the other) is very dangerous. I for one am all for ensuring that people don’t get issued with what could amount to a financial death sentence too easily.
Hasn’t affected me yet. None of my limits have been reduced and none of my inactive cards were closed. I also still get plenty of offers, although fewer offers with 0%.
@Trevor – yes, but they are also the ones more likely to default. I read AmEx was offering some people $400 just so they would pay off their balance and go away. Didn’t offer it to me, though, but then my balance is $0.
@Goran – while you are right that many people rely too much on cards and using one card to pay off the other is most often a bad idea, 0% offers can be really helpful in some exceptional circumstances. For example, a couple of friends of mine took advantage of them when faced with cancer-related medical bills. In one case, 20% co-insurance added up to a mid 5-digit amount that a friend, who had only immigrated in the US a few years earlier and had no time at all to save as much, didn’t have. In another case, a friend’s mother (in Eastern Europe where government’s health care doesn’t provide expensive cancer drugs) needed a drug that cost over $9000 every 3 months. Both friends were able to use their cards and then shuffle the amount between 0% offers until they repaid everything in full without ever paying a penny in interest. In one case, the person is now in remission. In another case, the ability to get this drug gave the mother 2 extra years of good quality life.
Plus, a number of people made money on 0% offers doing arbitrage. I think it was the arbitrage that made banks introduce 3% balance transfer fees since these fees appeared long before the credit crisis.
Good article… I’ve been recommending that consumer shop for their credit cards diligently. It didn’t occur to me that shopping would be more challenging. I haven’t seen the same evidence in Canada, with rewards there still available. I discuss this further in my blog.
Long time reader, first time commenter! Before going on vacation last month I called to inquire about increasing my credit limit. Within 2 minutes I had been approved for a 425% increase in my previous credit limit…..Mistake? Maybe……but one in my favor at least!!
So, to answer your question….I am still feeling pretty “peachy” in that I have not been affected too much at all.
I just tried to do a balance transfer from a Citi card to a Mastercard that I’ve had for 10 years. I was denied a transfer, AND had my credit limit on the Mastercard slashed by $13,000 (just over half). I’ve had a lot of medical expenses in the last two years due to a serious car accident, and I’ve resorted to the card too much. Now my debt to available credit ratio stinks, and I can’t get approved for a refinance on my mortgage because of my credit score. I’ve never had a late payment, and I pay more than the minimum, but I’m in a tough place right now. If I have more medical expenses, I’m not quite sure what I’m going to do about them.
In the UK at the moment there are lots of cards that offer 13 to 15 months interest free on purchases. The amount of money they are offering is not stupid like the way it was before (pre crash) but still, they are chucking it all out there. Another development in the UK is that the government is bringing into force new laws which force the minimum repayments of up to 5% compared to the current 3%. I’m not too sure how this change will impact us. Only time will tell but you either use credit cards or they use you.
I just lost all of my chase points. These new changes suck!
I think that the changes are going in the right direction as they are supposed to be helping those consumers who have been having credit card debt trouble the most. I believe the changes are designed to help out the most vulnerable consumers here. If anything, the loss in revenue that credit card companies were expected to experience due to the new card laws was something that I thought the card companies would try to make up through extra fees elsewhere. I was worried that they would try to extract extra revenue from their “good” customers by passing on charges and fees to these customers in order to make up for the limits imposed on interest rates. So far, I haven’t seen this happen yet, so that’s good. I also think that the credit industry is getting its groove back slowly but I sure hope they don’t overshoot things like they did last time and begin another cycle of loose credit (which really hurt the economy some years ago).