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Card issuers sweeten deals for those with great credit

Summary

While shedding people with credit problems, card issuers are sweetening the deals for those with excellent credit, putting them in good bargaining position.

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Have a strong credit score and good payment history? There might be a surprise waiting in the mailbox — a new credit card offer.

While they aren’t coming at the furious pace they were two years ago, credit card solicitations are still popping up, often offering no or low introductory annual percentage rates for purchases or balance transfers.

A new credit card offer certainly won’t appeal to everyone, but could be a boon to those who carry a balance, want to rack up rewards or can use it as leverage to try to get an interest rate break from their current credit card company.

Card issuers sweeten deals for those with great credit

“If consumers use it correctly, they can really use it to their advantage,” says Gregory B. Meyer, community relations manager for Meriwest Credit Union in San Jose, Calif. Meyer’s job includes giving financial education workshops to credit union members and nonprofit organizations.

Job No. 1: Have a good score
The first trick may be having a good enough credit score to actually get an offer. “There’s a really intense competition for the superprime segment,” says Richard Tambor, a managing director of Novantas, a New York management consultancy. The focus is on those customers with high FICO scores, generally around 760 or above. (Use the CreditCards.com Credit Score Estimator to get a handle on your score.)

In the second quarter of 2009, credit card issuers sent out nearly 30 percent more premium card offers than they did the during the previous quarter, a September 2009 study by Mintel Comperemedia found. On the flip side, they sent out 8 percent fewer offers as a whole.

For the first half of the year, almost 20 percent of all direct mail offers were for premium cards, compared to fewer than 10 percent the year before, according to Mintel, which is headquartered in Chicago and tracks direct marketing efforts.

Cherry-picking
Credit card issuers are trying to “pick off other banks best customers for their own. They’re trying to get the most profitable, least risky customer,” says Jack Craven, president of Debt Settlement USA in Scottsdale, Ariz.

As a result, 419 million credit card offers were sent out in the second quarter of the year. That’s down 8 percent from the first quarter and about 50 percent from the previous year, says Andrew Davidson, senior vice president at Mintel Comperemedia.

They’re trying to get the most profitable, least risky customer.

— Jack Craven
Debt Settlement USA

The company is predicting 1.82 billion offers will be sent out this year, just a third of what it was the year before. Davidson predicts mailings will pick up late this year or early in 2010, as the economy improves.

Peter Garuccio, spokesman for the American Bankers Association in Washington, D.C., says solicitations run counter to the number of credit card charge-offs, which has soared from 7.6 percent in the first quarter of the year to 9.5 percent in the second quarter, and is typically impacted by the unemployment rate.

A few cardholders coveted
But the credit card world isn’t necessarily all doom and gloom. While a July 2009 poll by CreditCards.com of a representative sample of more than 1,000 adults found more than 40 percent had seen credit limits chopped, credit cards canceled, APRs increased, or some other negative event, one-third — mostly higher income earners — reported their credit limits had been raised.

A study by Mercator Advisory Group in Maynard, Mass., found similar results in a survey of more than 1,000 consumers conducted at the end of May and early June 2009.

While more than half of respondents said they had received fewer credit card solicitations in the past 12 months, one-third said they had received the same number or more. Nearly 30 percent had seen their credit limits increased, while 17 percent had received a new credit card. On the other hand, 17 percent reported their credit lines had been cut, 12 percent had had cards canceled and 13 percent had been turned down for a new credit card.

“It surprised me a bit to see that negative experiences weren’t more widespread,” principal analyst Ken Paterson says.

Anas Osman, vice president of acquisition at Discover Financial Services, said in an e-mail the company’s mailings are down slightly year over year, but “we continue our focus on customers throughout the prime credit segment with established credit histories.”

Among the Riverwoods, Ill., company’s offers are balance transfers at 0 percent APR for 12 months, with a transfer fee, or purchases at 0 percent APR for six months.

Garuccio says financial institutions are making these kinds of offers to get a handle on what consumers prefer in the current economic climate.

Premium credit card offers rise
Premium credit card offers head back up
Credit card mail offers overall have plummeted, but in the second quarter of 2009, premium card offers, sent to those with excellent credit, actually rose, from 75 million to 96 million, according to a September 2009 study by Mintel Comperemedia.

Davidson says there’s been an upturn in co-branded offers, such as United Airlines teaming up with Chase. Some of the cards come with hefty fees, but offer benefits such as double miles for each dollar spent, or access to United’s Red Carpet Club. With such offers, financial institutions are “trying to launch a profitable product.”

In the second quarter, there’s also been an upturn in convenience check offers. “Issuers are now starting to feel much more confident extending offers to existing customers,” Davidson says.

Offers for existing customers
Consumers also are getting offers from financial institutions from which they already have a relationship, like a mortgage or checking account. “That has become a very prominent theme,” Tambor says.

Danny Kofke, a special education teacher from Hoschton, Ga., is one of those consumers who continue to get credit card mailings. “It’s not like a few years ago, but at least a couple a week do come in. They go into the shredder.”

He and his wife have one credit card they use for emergencies. When they charge something, they pay the balance in full. Although Kofke realizes if they use the card more they could get more reward points, “I don’t want to get caught up in it. I see how much trouble people can get into with credit cards.”

New credit card offers do offer consumers the potential to benefit. Someone carrying a $2,500 balance could save hundreds of dollars in interest charges by moving the balance to a new card with a 0 percent APR, Meyer says.

Before they do, they need to make sure to read the fine print. There may be transfer fees involved, or interest rates might soar if they miss a payment.

If consumers decide to make use of balance transfers, they need to have a strategy, says Christine Moriarty, a certified financial planner who runs Moneypeace in Bristol, Vt.

She counsels clients not to transfer credit card balances to a new card with a great introductory offer unless they plan to not use their existing card for at least six months to avoid “credit card roulette.”

Consumers can also use the new offers in an attempt to pressure their existing credit card company to lower their current interest rate, says Eric Tyson, author of personal finance books, including “Personal Finance for Dummies.” It might be as simple a consumer threatening to cancel her current card if the issuer doesn’t meet the promotional interest rate of the new card being offered. “You may not even have to apply for a credit card to benefit from that.”

See related:Credit Score Estimator, Decline slows in credit card mail offers

What’s up next?

In Research and Statistics

After a pause, credit card interest rates resume upward march

After staying flat the previous week, the national average interest rate on new credit card offers rose to 12.28 percent, according to the CreditCards.com Weekly Credit Card Rate Report.

Published: September 10, 2009

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