Fri 5 Feb 2010
Say goodbye to ultra-low credit card rates
Posted by lizweston under Liz's Blog
1 Comment
Credit card rates are going back to the future.
Instead of a wide range of rates based on the borrower’s risk profile, credit card companies will move to toward a single-rate system for all their customers, Discover CEO David Nelms told the Salt Lake City Tribune recently.
The Credit Card Accountability, Responsibility and Disclosure Act will benefit some people and hurt others, said Nelms, who was in Utah visiting the company’s largest call center operation Tuesday, in West Valley. For those with good credit, “the ultra-low rates of the past 10 years aren’t going to be available anymore.”
That’s how credit card rates used to work, back in the days before credit scoring. One rate, usually around 18%, for all customers–and folks with bad credit need not apply at all.
In February 2008, I warned that “The credit card party is officially over” as rising defaults and the credit crunch led issuers to start raising rates and lowering credit limits. That trend only accelerated after credit card reform passed. Balance transfer offers have gotten much less generous and rewards programs are about to suffer, as well. (I’ll be writing about that next week for MSN Money.)
All told, it’s a good time to get that credit card debt paid off. If you still have a low rate after Feb. 22, when the last of the CARD Act reforms kick in, you should be able to keep it unless you’re late paying by 60 days. Otherwise, you might want to consider locking in a lower rate with a personal loan from a credit union. With good credit, you could get a three-year loan with a fixed rate around 10%.
Unless Congress decides to cap interest rates too, I wouldn’t be surprised to see average rates in the US climb even higher than 18 percent.
There will always be a large group of consumers who have had credit problems in the past that demand products to help them rebuild their credit histories over time. Discover may choose to not play in this market, but other companies will.
We’ve already seen First Premier test products with rates north of 70%, and I know they have other products they’re preparing to launch in the near future. It will be interesting to see how Orchard Bank responds as well in 2010.
For those who wisely don’t carry any credit card debt or students just beginning to establish credit histories, these trends provide all the more reason to keep living within your means and paying off your credit card balance in full every month. Yes, it’s nice to have a low interest rate in case of an emergency, but that’s what emergency funds are for. I’ve never become to fixated on what my credit cards’ rates are.