Is Your Credit Card Company Upfront with its Customers?

This is a guest post by Odysseas Papadimitriou, founder and CEO of CardHub.com, an online marketplace for credit card offers.

Do you know what to look for before you apply for a credit card? If you’re not prepared ahead of time, there’s a good chance you might miss some key information on your credit card agreement. A recent study from CardHub.com found that many issuers still lack transparency on their credit card applications, despite recent regulations under the new credit card law (Credit CARD Act) meant to promote clarity in the credit industry.

The Summer 2010 Credit Card Application Study evaluated how much information could be gathered on a credit card application without reading the fine print, as this is what most consumers see before they apply for a credit card. The study evaluated the 10 largest issuers on the clarity with which they disclosed essential information such as APRs, common fees, and details on rewards programs. It was determined that the ideal application would have this information clearly displayed, without the applicant having to actively search for it.

Of the issuers evaluated, Capital One and Bank of America ranked the highest, with scores of 96.4 percent and 95.0 percent, respectively. The issuer that performed the worst in the study was U.S. Bank with a score of 59.3 percent. USAA and American Express followed with scores of 77.5 percent and 78.3 percent, respectively.

The category in which issuers performed poorly across the board was clear disclosure of the balance transfer fee. It is particularly important that this fee is clearly displayed because it less likely that a consumer would know to look for it (as opposed to knowing to look for the APRs) and it can cost the applicant a significant amount of money.

Applications were also consistently lacking in information on rewards programs for non-cash-back rewards credit cards. There was often information on how to earn rewards (e.g. one rewards point for every $1 spent), but it was often difficult to find how much rewards points and miles were actually worth (i.e. is 15,000 points worth a trip to Florida or a trip to Europe?). In order to find this information, the applicant typically had to read the fine print and in some cases navigate to an entire new section of the website.

Although clarity was lacking in some areas, there were also signs of improvement. Vague language and phrases such as ‘up to’ and ‘as low as’ were found to have diminished considerably. It was also often fairly easy to find information about the annual fee and in many cases the introductory APRs.

This improvement is encouraging, but the fact remains that in order to truly know what you’re getting into when applying for a credit card, you must carefully read the terms and conditions of your credit card agreement. If nothing else, be sure to look for the introductory and regular APRs for purchases and balance transfers, the annual or monthly fees, the balance transfer fee, and details on your rewards program. This will give you a good start for being your own financial advocate.

Credit Card Changes in the First Half of 2010

2009 was a difficult year for many credit card customers. Interest rates increased significantly, credit limits were slashed for millions of cardholders, issuers closed risky accounts and rewards were decreased. Many consumers wondered what would happen after the CARD Act and other regulations went into effect in 2010. Would these regulations really help consumers?

“Despite regulations, credit card issuers are still increasing rates and fees in 2010, but less dramatically than last year,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Here are some of the changes that banks and credit card issuers have made during the first half of 2010.

Rate Increases
Compared to 2009, this has been a slow year for rate increases. Issuers increased rates dramatically in 2009 while it was still easy to raise rates, and most issuers have not made wide-ranging rate increases since then. But rates have continued to increase during 2010. Here are some recent changes:

• Capital One increased the rate on its Classic Platinum credit card from 16.9% to 19.8% and on the No Hassle Cash Rewards card from 17.9% to 19.8%.

• Citi increased its Cash Advance APR from 21.99% to 25.24%. (February 2010)

Overall, rates are still rising. Based on the 1000+ cards in the LowCards.com Complete Credit Card Index, the average advertised APR for credit cards this week is 13.64%. Six months ago, the average was 13.25%. One year ago, the average was 12.10%.

Higher Fees

• Discover increased the cash advance fee from 3% with a $5 minimum to 5% with a $10 minimum. (January 2010)

• Bank of America added an annual fee for a limited group of cardholders that started in February. The fee ranges from $29 to $99 and is applied to the selected accounts based on risk and profitability.

• Citi increased its balance transfer fee from 3% to 4%. (June 2010) It also increased the cash advance fee increased from 3% to 5% with a minimum fee of $10.

• Citi added a $60 annual fee to some credit card accounts, effective April 1, 2010. Make $2,400 in purchases each year and the annual fee will be credited back to your account.

Banks are already preparing new fees on basic banking services as they try to replace revenue lost to recent regulatory rules. HSBC and Wells Fargo ended their free checking accounts. Bank of America is testing account fees and options that will be added later this year. Other banks could join in.

Some Niche Cards and Popular Offers are Discontinued

• Credit card issuers have discontinued some of the specialized cards that were targeted to consumers during a time of free-flowing credit. Chase closed the Starbucks Duetto Visa and credit card deals with Avon Products, Inc., The Detroit Pistons, The Orlando Magic and the New Jersey Devils.

• Bank of America also reduced the number of niche cards. The Wall Street Journal reported that Bank of America currently has about 4,400 affinity cards, down from 5,000. These are typically offered through college alumni associations and charities.

• The Wall Street Journal also reported that Chase now has about 110 co-branded credit cards, down from more than 200. Issuers seem to be eliminating these cards to cut costs and reduce their risk of delinquencies by card holders.

• Charles Schwab no longer accepts new applications for its acclaimed cash rebate credit card that was recommended by many consumer advocates and financial writers. The rebate was 2%, one of the most generous cash rebates available, and it was deposited into a brokerage account.

• The National Football League is moving its branded credit card business from Bank of America to British banker Barclays. This is forcing customers to scramble to spend reward points before they expire next month. They will have to apply for the new card to continue earning NFL rewards.

Expanding Introductory Offers
Some credit card issuers are increasing intro offers back to 12 and even 18 months. This is a sign that issuers are competing again for new customers. Until recently, issuers had slashed some intro rates periods to only three or six months, depending on the credit score.

• For some applicants, Discover increased the intro period for balance transfer increases from 12 months to 15 months for Discover More. (July 2010)

• Citi expanded the intro period to 18 months for all balance transfers to Citi Platinum Select. It was previously a tier of 18, 12, or 7 months.

• Iberia Bank Visa Select Card expanded the intro rate on purchases to 0% for 12 months (formerly 7.5% for 12 months). It lowered the intro rate to 1.99% for balance transfers during the first 12 billing cycles (formerly 7.5% for 12 months).

New Offers and Targeted Incentives to Encourage Spending

• Chase and Continental Airlines launched the new Continental Airlines OnePass Plus Card and added new features and benefits to the existing Continental Airlines Presidential Plus Card.

• Chase revised Freedom Rewards. It now offers a 5% cash-back rotating rewards promotion on its Chase Freedom card. However, it requires cardholders to register every three months in order to continue earning that level of cash back on spending categories that change every three months.

• Delta and Continental now waive checked bag fees for at least one bag if the ticket is purchased with their affiliated credit card.

• American Express offers selected cardholders a $30 statement credit for shopping at six of the designated retailers by August 30, 2010.

More Credit Card Offers in the Mail

During the first quarter of 2010, US households received 481.3 million credit card offers, a 29% increase from the 372.4 million offers mailed during the same period a year ago, according to the latest study by Synovate Mail Monitor. Some credit card issuers, such as Capital One and HSBC, more than doubled their mail offers during this quarter versus the prior quarter.

The study also showed direct mail offers are also becoming more widespread for soliciting new debt as more issuers offer attractive introductory interest rates. 65% of the total offers mailed in the first quarter had an introductory purchase APR compared to just 58% in the final quarter of 2009.

Consumers with good or excellent credit scores seem to be receiving the majority of these direct mail pieces.

“The consumers with above average credit scores are the ones that most every issuer wants,” says Hardekopf. “They pose less risk.”

Using a Credit Card Abroad: What You Should Know Before You Go

This is a guest post by Odysseas Papadimitriou, founder and CEO of CardHub.com, an online marketplace for credit card offers.

Credit cards are a great addition to any trip, especially when traveling overseas. They offer some of the best exchange rates and the convenience and security of carrying around as little cash as possible. Using a credit card also ensures that you won’t be stuck with left over foreign currency at the end of your trip.

Knowing this, imagine that you go on a trip to Europe and spend $3,000. You use your credit card for most of your purchases because, in addition to the advantages above, you can use a rewards credit card to earn rewards in the form of extra cash or airline miles for every purchase you make. At each point of sale, the merchant asks if you would like to convert your transaction from the local currency into U.S. dollars. You say yes every time, and are satisfied with seeing your transaction in a currency that you are familiar with.

When you get home and receive your credit card bill, however, you are astonished to find that while you were in Europe you were charged almost $300 more than the value of the things you bought. When you closely examine the receipts, you see that there is almost a 10 percent mark up on all of your transactions.

This extra 10 percent is due to a combination of two things: foreign transaction fees and Dynamic Currency Conversion fees. A foreign transaction fee is fairly typical, and is assessed by most credit card companies when you make purchases abroad – this is usually around 2- 3 percent of your purchase. To keep your costs down while traveling, it may be worth applying for a no foreign fee credit card before you go.

Dynamic Currency Conversion on the other hand, is a technique that merchants use to make extra cash on electronic transactions made by travelers. They offer to convert your transaction into your home currency, but in doing so charge a fee as high as 7 percent of your purchase to do the conversion, then pocket the difference. This can be easily avoided by simply insisting that your transactions are in the local currency every time.

Another thing you should consider when traveling with a credit card, is which credit card networks are accepted in the country to which you are traveling. The credit cards most accepted worldwide, by a large margin, are credit cards on the VISA and MasterCard networks. American Express also has a global network, but acceptance varies greatly based on the country. The more developed the country, the more American Express is on par with VISA and MasterCard. Discover Card is the least useful card overseas, as it is rarely accepted outside the U.S.

If you’re traveling in Europe, you will notice that most European countries use chip-and-PIN technology for their credit cards. These are smart cards with embedded microchips that are authenticated automatically using a PIN. They are much more secure than the magnetic stripe credit cards that we use in the U.S., so most merchants will want to see your passport for identification purposes before they will allow you to use your magnetic stripe card. Therefore, be sure to carry it with you at all times.

Finally, to avoid any unnecessary headache while on your trip, make sure to notify your credit card company of your travel plans before you leave. The last thing you want is to be without a means of spending, and this will assure that they will not suspend your credit card due to suspicious charges made outside the country.

Now that you have the information you need, a credit card will provide you with a hassle-free trip. Because of credit cards favorable exchange rates, you can rest easy knowing that you’re getting the most for your money – especially if you’re using a no foreign transaction fee credit card and always doing your transactions in the local currency. If you know what to look out for and plan accordingly, there is no better way to go.