TOP 5 IN REAL ESTATE, April 2010—(MCT)—No, the kitchen table isn’t quite as cluttered as it used to be with credit card offers.
But they are popping up in the mail. Slowly but surely, some banks are peeking out of their foxholes and thinking it’s OK to lend to consumers again.
The uptick in offers comes just months after card issuers closed accounts on some unsuspecting consumers, cut lines of credit, raised rates and treated plastic as if it really was the new platinum.
“We are seeing a lot more activity,” said Bill Hardekopf, CEO of LowCards.com. “It looks like the market has rebounded.”
Mark Zandi, chief economist at Moody’s Economy.com, said he’s seen early signs that credit card lenders are easing up a bit on underwriting standards. According to Equifax credit file data, he noted, the number of bank cards rose between December and March, the first increase in nearly two years.
The economy is showing signs of improvement, credit card delinquencies aren’t as bad as they were in 2009 and credit markets are stabilizing.
So lenders are gradually sending what some now call preselected offers.
“There’s some willingness to put their toe in the water,” said Diane Swonk, chief economist for Mesirow Financial in Chicago.
Not everyone, of course, is seeing the mail cluttered with offers such as zero percent on balance transfers until April 2011 with a Citi CashReturns Card, promos for Gold Delta SkyMiles from American Express, zero percent on balance transfers and purchases for 12 months from Wells Fargo or zero percent on purchases for 12 billing cycles on a Fifth Third Visa Signature Rewards Card.
Lenders are picky and mainly targeting consumers who regularly use cards and the most creditworthy borrowers. Some offers also contain higher than usual fees, so consumers need to study them.
No one expects credit card solicitations to jump to a level where nearly everyone will get an offer for credit.
That’s what happened years ago when, Swonk recalled, even her late dog Buddy was pre-approved for a credit card.
If the U.S. economy continues to recover, though, some expect that credit card offers will increase further.
“I suspect lenders will slowly become more willing to extend out credit given the better credit conditions and job market,” Zandi said. “Increasingly, lenders will focus less on credit risk and more on how they can grow their business.”
He noted that in terms of credit availability, plastic seems to be showing the most new activity. The numbers of home equity and auto loans continue to fall, for example, although the pace of the decline is slowing, he said. Credit quality is also improving for these types of loans.
If you’re cynical—and I might be—you could say that this mini-rush of marketing now would make sense.
After all, consumers will look twice when they see zero percent slapped on an envelope. Or they might consider a rewards card around 13 percent or lower.
It’s going to look far less tempting to borrow money, though, once the Federal Reserve pushes up short-term rates.
Zandi’s forecast is that interest rates are as low as they are going to go, and rates will be higher a year from now and even higher in two years.
“If you need to borrow and have a good job and credit score, this may be the time to do it,” Zandi said.
One thing you must know if you get one of these mailings: More offers tend to be variable interest rates, as opposed to fixed rates, according to Gerri Detweiler, personal finance adviser at Credit.com.
So your credit card rate would likely climb in the future, even if you grab one of these deals now. The prime rate isn’t going to remain at 3.25 percent forever. She also warns to watch out for fees.
Something else you should know: Just because you get an offer doesn’t mean you’re going to get the card.
I heard from one consumer who has a job and thought she had strong credit. She was shocked when she applied for what appeared to be a pre-approved card offered by her credit union and was rejected.
You would think that pre-approved or pre-selected means the card is yours if you want it.
But thanks to provisions in the Credit CARD Act of 2009, card issuers now must consider whether you can actually repay what you borrow on that plastic before they approve you.
Consumers don’t have to turn in pay stubs. But lenders will look at some income estimate models to judge your ability to repay.
So remember: More clutter in the mailbox doesn’t mean more plastic in your wallet. And maybe that’s not a bad thing.
How to look into a credit card offer:
- See whether the rate is variable—and how much it could go up once the prime rate or other rates go up.
- See whether there are any annual fees tied to the card now or a year from now.
- Pay attention to other fees. The rate could be zero percent on a balance transfer for a set time, but you could have to pay a fee of 4 percent on the amount of each transfer or $5 per transfer, whichever is greater.
- Pay attention to late payment fees. Some are as high as $39.
- Pay attention to fees for convenience checks. Some charge $5 or 4 percent of the amount of the check, whichever is higher.
- Some credit card issuers also are creating complex rules for convenience checks to customers. It is possible you’d get three or four checks in a mailing. One check could have a zero percent rate for a set period, but if you used another check in that same mailing, the rate could be 3.99 percent for another time period. Read these mailings carefully.
To learn more about what to consider when applying for a credit card, see www.federalreserve.gov/creditcard.
(c) 2010, Detroit Free Press.