|by Jason Steele|
With Halloween around the corner, it is a good time to be alert for scary stories. This year, there is a lot of frightening news in the business section of the newspaper.
Financial Crisis Hits Credit Cards
We all knew it would be coming. Anecdotal evidence from postings over at FlyerTalk indicate more people are being hit with a “financial review” from their credit card company these days. Today, the New York Times has a lengthy article discussing how credit card companies may follow the mortgage industry as the next victim of the credit crunch. The article points to the credit card companies restricting credit on several fronts.
Raising interest rates
This is an obvious consequence of tightening credit markets. As a reward credit card aficionado, this does not directly affect me personally. On the other hand, I know that people like myself, who have been able to successfully avoid paying interest on my credit cards, are probably in the minority.
Reduced Credit Limit
Card companies are reducing credit limits on card holders. Again, perhaps I am in the minority, but I almost never approach the limit on a single card, and if I do, I have several other backups. The last time this happened was when we bought our house. We budgeted, and spent, tens of thousands of dollars on renovations. At one point I even paid off part of my balance before the due date in order to stay below my credit limit and rack up more reward points. Those of you who are forced to finance your daily lives on credit cards have yet another good reason to curtail that tenuous arrangement.
Fewer Promotional Offers
Thankfully, I have not seen any decline in reward card sign up bonuses, but it does seem like there are fewer 0% APR promotion offers. I have never been bold enough or organized enough to attempt an introductory rate arbitrage play. That is when you borrow money at 0%, and then deposit it in an interest bearing account. The account is then used to pay of the card, and the interest earned is yours to keep. Proponents of this scheme are likely to be disappointed in the near future.
The article states that: “Some reward programs have also gotten stingier as lenders cut corners to save money. Card companies, for example, have taken to substituting cheaper brands for a Sony big-screen television as a way of lowering the cost of their redemption prizes.”
To me, it is hard to distinguish the natural devaluation of reward programs from any changes that are being made directly as a result of the current financial crisis.
The article does mention that fees are unlikely to go up substantially this year, as they have in the past. This is due to the fact that fees are already pretty high, and there is a lot of legislative scrutiny going on in light of the proposed credit card bill of rights.
Another piece of good news is that you are likely to receive fewer credit card offers by mail. I hate these, and have always asked the credit bureaus to opt me out of pre-screened offers. Unfortunately, I have always received plenty of these offers in the mail. For example, we used to receive an offer from the Chase/United airlines card once a week that continued long after we actually received the card!
OK, Maybe That Wasn’t So Scary
If you really want to have nightmares, just read Jenna’s story on First Premier!