Changes Taking Place with Balance Transfer Credit Cards
Holiday shopping and New Year’s resolutions typically generate an increased interest in balance transfers for credit cards. This year, many consumers may be disappointed to discover that the days of generous balance transfer offers could be over.
Balance transfer offers were once a competitive edge for credit card issuers; they used these generous offers to lure cardholders from another issuer. The standard offer to almost everyone was 0% for 12 months for balance transfers. They did not charge a fee if the balance transfer was made with the application.
Four significant changes have occurred with balance transfer credit cards.
The first change was that issuers added a balance transfer fee in the last few years. Initially, this was a 3% fee with a $50-$75 maximum. In the past year, many issuers have removed the maximum. Hence, if you transfer $5,000, you will pay a $150 balance transfer fee.
Secondly, the length of the offer is no longer the standard 12 months. The length of the offer may now be based on the applicant’s credit score and may be as short as three months.
Some issuers are limiting the amount of money that a consumer can transfer from one card to another. Because of this, experts say consumers need to lower their expectations on how much they will be able to transfer. Banks are lowering credit limits to reduce their lending risks, so the consumer may only be able to transfer a portion of the balance to a card with a lower rate.
Many introductory rates are also increasing. Some issuers no longer charge the typical 0% intro rate or a low rate for the life of the balance; instead, issuers may charge 2.99-3.99% for three to 12 months before increasing the rate to the standard rate. As an example, American Express dropped its attractive promotional offer this fall for balance transfers on its Blue and Blue Cash cards. It was 4.99% on balance transfers for the life of the balance; it is now 2.99% for 12 months and then the standard rate.
There are some cards that still offer a 0% APR on balance transfers, for example: Capital One Platinum Prestige offers this through October 2009 and Discover More offers this for 12 months.
Here are some examples of typical balance transfer offers that are available with an application for a new card:
* Citi Platinum Select has a tiered system for length of intro rates: six, nine, or 12 months.
* Chase Perfectcard. Depending on the applicant’s credit history, the intro period will be either six months for purchases and balance transfers, or three months for balance transfers only.
* Discover Motiva offers 3.99% intro rate for six or 12 months.
* Jet Blue offers 3.99% intro rate for six months.
* Starwood Preferred Guest–2.9% intro rate for six months.
Consolidating credit card debt onto a card with a lower rate may be very difficult unless a consumer has a very good credit score. If you do need to transfer your balance onto a new card, experts suggest starting with your credit card with the highest rate and transfer as much of that as possible.
According to the recent Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices, about 20% of domestic banks reported having reduced credit limits on existing credit card accounts to prime borrowers. But roughly 60% of banks had lowered limits on existing credit card accounts of nonprime borrowers.