Well, lots have happened in the financial markets with the sub prime crisis. The crisis first triggered off when financial markets realized that housing prices will continue to decline and the value of many structured products backed with sub prime loans! Then money market funds stopped buying commercial papers issued by “black box” funds (SIVs) that buys CDOs! The the bubble burst and lots of banks have now taken substantial write downs. What does this mean for regular consumers.

With banks balance sheet weaker, loans will be harder to come for those with poor credit. Here is my prediction in credit card land for 2008.

Credit card issuers will make it harder to those with bad credit to get approvals – In a very drastic case, Citibank, who owns the credit card portfolio of Egg (in the UK) effectively told their cardholders that they can no longer use their cards in a months time! If you have a low 600 type FICO score, you will have a harder time getting credit card approvals.

Good 0% APR balance transfer deals becomes harder to find – Banks are taking huge write down on their sub prime portfolios. Consumer spending is expected to go down. Which means credit card spending is expected to decline as well. Those working in the credit card divisions will pay more attention to being profitable than simply expanding market share. Last year, credit card issuers started doing away with the cap on balance transfer fees. I expect this to continue this year. I suspect 0% for 12 deals (which used to be the norm) will slowly disappear.

Hidden Fees continue to go up – Late fees and over-the-limit fees have gone up each and every year for the last few years. In fact, inflation in credit card fees is much higher than the CPI average of 2%! Remember the times when late fees were just $19? Not too long ago was it?

Credit Card issuers will trim their portfolio – Right now, Chase and Bank of America have the largest portfolios. This was a result of their previous acquisition. In Chases’ case, it was Bank One. Bank of America bought MBNA. Having spoken to friends who work in the credit department of these companies, I’ve found out that many of these cards are simply not profitable. And that they are looking to trim their portfolio. If you are carrying a card that is affiliated with a retail store like maybe a Sony credit card, do not be surprised if the card is discontinued and your card becomes another type of card!

Further Consolidation in the industry – As credit card delinquency rates go , retailers or non-banks who have their own credit card portfolio will sell them to the major credit card issuers. GE financial have already sold their credit card portfolio. More will follow.

This entry was posted on Saturday, February 9th, 2008 at 05:16 and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.