Predictions for the Credit Card Industry in 2009
2008 was a very turbulent year in the financial industry. Many consumers are wondering what to expect in this new year. Here are some predictions for the credit card industry for 2009:
1. Credit card companies will continue to change their marketing strategy. A few years ago, credit card issuers seemed to market credit cards to anyone who had a name or an address. Their goal was to increase the number of applications and get as many cards in a person's wallet as possible, with less emphasis on the person's true
ability to pay off the loan. Credit card issuers have now slashed the number of mass mailings and are reducing some of their online marketing channels. To reduce their risk, they will continue to shift their marketing goal from quantity to quality.
2. Financial institutions might be more helpful to work out a payment plan for debt. Financial institutions have already lost a tremendous amount of money over the past two years. Right now, collecting a portion of the amount due is better than losing the whole amount in default. Acknowledging the financial distress of many households,
banks are showing more flexibility to work out a payment plan with their cardholders who are experiencing difficult times. For some customers, they may waive late fees, lower interest rates, or forgive part of the debt. While this is helpful for the cardholder, it may also cause a sharp drop in their credit score.
3. Congress will continue their attempt at credit card legislation. Credit card regulations passed in December by the Federal Reserve were a good start but Congress will continue their push for more changes. "In addition to the Fed's regulations, we expect Congress to try to create legislation that puts restrictions on marketing that targets teenagers and college students, and put caps on interest rate increases. They may also try to limit "pay to pay" fees for telephone or electronic payments, and cap the number of over-the-limit fees that credit card companies are allowed to charge," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
4. Issuers may continue to reduce offers for balance transfers. The 0% for 12 months introductory rate was once a popular way to market credit cards and entice cardholders to transfer their debt from another lender. Most offers are now dependant on your credit score, the intro rates are higher (instead of 0%) and an intro period may be as short as three months. Most issuers now also charge a balance
transfer fee which is usually 3% of the amount transferred. The lower credit limits may be disappointing for many consumers who are looking at balance transfer offers as a way to pay off high balances with high rates.
5. Credit card issuers will keep looking for any sign of increased credit risk and raise rates if they find it. Issuers keep a close watch on individual accounts. If your credit score drops or your debt ratio increases, this can immediately set off the risk alarm and an issuer may raise your APR. "We had a lot of complaints about rate increases in 2008, and this could increase in 2009 before the regulations begin in 2010. Do everything you can to maintain or increase your credit score," says Hardekopf.
6. It may be very difficult to be approved for a credit card if you have less than average credit. Issuers are looking to minimize their risk after being hurt by so many bad loans in recent years. As a result, consumers with low credit scores might find it harder to secure a credit card in 2009.
7. Credit card issuers will still have the upper hand with your credit card loan. Despite the regulations, credit card issuers will still have room to increase your rates and fees. The only way to control your credit card debt is to pay each bill time and to pay off the balance as quickly as possible.
1. Credit card companies will continue to change their marketing strategy. A few years ago, credit card issuers seemed to market credit cards to anyone who had a name or an address. Their goal was to increase the number of applications and get as many cards in a person's wallet as possible, with less emphasis on the person's true
ability to pay off the loan. Credit card issuers have now slashed the number of mass mailings and are reducing some of their online marketing channels. To reduce their risk, they will continue to shift their marketing goal from quantity to quality.
2. Financial institutions might be more helpful to work out a payment plan for debt. Financial institutions have already lost a tremendous amount of money over the past two years. Right now, collecting a portion of the amount due is better than losing the whole amount in default. Acknowledging the financial distress of many households,
banks are showing more flexibility to work out a payment plan with their cardholders who are experiencing difficult times. For some customers, they may waive late fees, lower interest rates, or forgive part of the debt. While this is helpful for the cardholder, it may also cause a sharp drop in their credit score.
3. Congress will continue their attempt at credit card legislation. Credit card regulations passed in December by the Federal Reserve were a good start but Congress will continue their push for more changes. "In addition to the Fed's regulations, we expect Congress to try to create legislation that puts restrictions on marketing that targets teenagers and college students, and put caps on interest rate increases. They may also try to limit "pay to pay" fees for telephone or electronic payments, and cap the number of over-the-limit fees that credit card companies are allowed to charge," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
4. Issuers may continue to reduce offers for balance transfers. The 0% for 12 months introductory rate was once a popular way to market credit cards and entice cardholders to transfer their debt from another lender. Most offers are now dependant on your credit score, the intro rates are higher (instead of 0%) and an intro period may be as short as three months. Most issuers now also charge a balance
transfer fee which is usually 3% of the amount transferred. The lower credit limits may be disappointing for many consumers who are looking at balance transfer offers as a way to pay off high balances with high rates.
5. Credit card issuers will keep looking for any sign of increased credit risk and raise rates if they find it. Issuers keep a close watch on individual accounts. If your credit score drops or your debt ratio increases, this can immediately set off the risk alarm and an issuer may raise your APR. "We had a lot of complaints about rate increases in 2008, and this could increase in 2009 before the regulations begin in 2010. Do everything you can to maintain or increase your credit score," says Hardekopf.
6. It may be very difficult to be approved for a credit card if you have less than average credit. Issuers are looking to minimize their risk after being hurt by so many bad loans in recent years. As a result, consumers with low credit scores might find it harder to secure a credit card in 2009.
7. Credit card issuers will still have the upper hand with your credit card loan. Despite the regulations, credit card issuers will still have room to increase your rates and fees. The only way to control your credit card debt is to pay each bill time and to pay off the balance as quickly as possible.
