Is credit card loyalty for chumps?
Why staying faithful may not count with your credit card company
Your loyalty may make you a stellar best friend, but it's probably not doing you any favors with your credit card company these days. Even if you stuck it out through years of new card temptations (Low introductory rates! Zero-percent APR balance transfers!) in the hopes of earning better customer service or more enticing rewards, the dismal economy may have turned your card issuer into a turncoat.
"People who have been with their card company for 10 years and were never late on a payment are opening their statements and finding that the terms of their entire cardholder agreement have been thrown out the window," says Jason R. Rich, author of "The Complete Book of Dirty Little Secrets: Money-Saving Strategies the Credit Bureaus Won't Tell You." Some card issuers have abruptly jacked up interest rates and cut credit limits for long-standing customers. Others have refused to negotiate on fees. In what may be the most dramatic instance of cutting ties, American Express riled some cardholders earlier in 2009 by offering them $300 to close their accounts and leave the company for good.
Thirteen years as a reliable Citi cardholder didn't help Danielle Liss, a Las Vegas attorney who learned earlier this year that her 9.24 percent APR was about to skyrocket to over 26 percent. "I was in shock. When I called to see if there was anything I could do, Citi's customer service rep didn't remotely care that I had been a cardholder for such a long time," she says. Incensed, Liss rejected the new terms and started hunting for a new card.
The changing rules of card loyalty
For years, credit card companies pulled out all the stops to lure new customers. In 2007 alone, the industry sent out 5.2 billion card solicitations -- about 36 per American household -- touting super-low introductory rates and bonus rewards for signing up. But they've also insisted on wooing existing cardholders with ever-more generous rewards programs, designed to encourage cardholders to stay put and spend more. Now, almost 80 percent of cards have some sort of rewards program attached to them, according to a study by Colloquy, a Cincinnati-based loyalty marketing consulting firm.
In this economy, however, cardholders are between a rock and a hard place. First, the flood of low introductory rates has all but dried up. "There was a period when people would hop from card to card to take advantage of teaser rates, but I think that era is over," says Richard Bialek, CEO of Bialek Group, a boutique firm that advises financial service companies. "Credit card companies will be less able to afford those kinds of low rates, and it will be more difficult for customers to get accounts."
Second, rewarding long-term loyalty with perks and better terms has taken a back seat to card issuers' focus on the bottom line. "The credit card companies are pretty terrified of what's going to happen as times become tighter," says Alan Lysaght, co-author of "The ABCs of Making Money." "They have to keep their profit numbers up, and they're doing it by penalizing good customers."
Consumers should not worry about being loyal to their credit card company because their card company is no longer being loyal to them.
|-- Jason Rich
The upside of loyalty
Still, staying put can have its benefits. For example, if you jump ship, you'll likely lose all those racked-up rewards points. The rewards are getting stingier, with added fees or premiums that suddenly cost more, but what they've lost in largesse, they make up for in flexibility and freedom.
Citi's ThankYou Rewards program, for instance, lets cardholders accumulate reward points not just by charging purchases to their Citi credit card, but by banking with Citibank, booking travel on Expedia.com and shopping at certain retailers. The points themselves are redeemable for a wide variety of rewards: cash, gift cards, travel, electronics and even charitable donations. Another card, Chase Freedom, lets you accumulate triple rewards points in the three everyday-spending categories in which you drop the most cash.
You may also earn better customer service by sticking around longer, says Kevin Mulligan, of Birmingham, Ala., who blogs at NoDebtPlan.net. "I've had one instance in the past few years where a payment was deducted from the wrong account, and American Express took care of everything for me, virtually bending over backward to ensure I was satisfied and would stick with them."
Plus, the longer you've been a good customer for a card company, the more likely they are to negotiate with you on interest rates, fees and even balance -- usually. After 20 years as a Chase customer, Cindy Morgan-Olson of New York City couldn't wriggle out of an interest rate hike. Even so, she plans to stay put for now. "I don't think it looks good to switch cards that often," she says.
Still, Rich says getting a new card every once in a while shouldn't have much impact on your credit. "As a rule of thumb, opening one credit card every three to six months is not a problem," says Rich. "But you take a huge hit on your credit score if you suddenly get lots of new credit."
Making the move
Sometimes, new terms on an old card are awful enough -- or an offer is good enough -- to push you toward a new card. For new customers with good credit, there are still deals to be had.
Consider Discover's More and Citi's Platinum Select, which offer a 0 percent APR for six to 12 months for balance transfers and new purchases. The Chase Freedom card offers $50 cash back to new customers after their first purchase, while the American Express Preferred Rewards Gold card promises an extra 10,000 member reward points if you charge $500 in your first three months with the card -- redeemable for a $100 gift card.
Of course, you may be hopping out of the frying pan into the fire. Those enticingly low intro rates are just as apt to change abruptly as the rates on your old card. Plus, as mentioned earlier, your credit report may take a hit when you apply for a new card.
A few rules to follow before you jump ship:
- Read the fine print. This will help you figure out exactly how long your introductory APR will last and under what conditions the card company can alter the terms of your agreement.
- Do the math. Annoying as it is, the higher APR on your credit card may not make as much financial difference as you think -- while the hefty annual fee on the new card will.
- Let your existing card company fight for your business. "For most people, their credit card rate goes up and they get mad, but they don't tell the company that they're mad," says Lysaght. "The smart thing is to phone them up and let them know how you feel."
In the end, even if you've been loyal in the past, now's not the time to get misty-eyed about your relationship with your card issuer.
"Consumers should not worry about being loyal to their credit card company because their card company is no longer being loyal to them," says Rich.
See related: Credit card terms, they are a-changing, How to react to a rate-jack attack, Dumped by your issuer? Here's how to deal with the breakup, Keep the card or cancel when faced with a rate-jack attack?
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