Things consumers and credit card issuers did that made us want to punch each other in the face!

September 2, 2009

This is a guest post by Mr Credit Card from www.askmrcreditcard.com. His site has lots of credit card reviews. If you are looking to apply for a credit card, head over to his site as he has got the best credit cards recommendations. Today, Mr Credit Card is going to write about things we have done that made credit card issuers want to punch us in the face, and also things they have done that make us want to punch them in the face.

Before I begin, I just want to thank Ninja for allowing me to guest post on this blog. I always get a kick, and laugh my hearts out when I’m here. I hope you will find this post useful and interesting.

Credit card companies (during the last year and the half) have done some nasty stuff that simply wants to make us punch them in the face! In this post, I am going to write a few details on some of their actions. But I’ll also tell you how stupid they have been, how we have taken advantage of them. What we did probably made them want to punch us in the face.

Backdrop – The real backdrop to this really started with easy monetary policy of the federal reserve. After 9/11, and the recession following the tech bubble, Alan Greenspan began an era of loose monetary policy. This eventually fed into the easy credit access to consumers. General Motors started it off with its buy America program. Zero percent financing for autos became the norm.

Easy financing spread to credit cards – But soon, easy financing spread to credit cards. Because public companies are judged by their quarterly results, one of the key criteria that investors watched for in credit card issuers was how many “new customers” they added. Well, to increase new sign ups, credit card issuers resorted to a whole hoax of new tricks.

Followed the auto’s zero financing deals – Since the average consumer already had a few cards, it was pretty difficult to get folks to sign up another card. So credit card issuers started offering balance transfer credit cards that offered 0% deals just to switch from your existing card to theirs. Their theory was that once consumers transferred their balance, they would continue to use their cards after their balance transfer period ended. But they were wrong. Consumers were savvier and simply took advantage of these deals. They just simply rolled over to a new 0% offer. Since many of these offers did not charge any balance transfer fees, and transferring a balance was as simple as filling in an online application, consumers did not remain sticky customers. So essentially, issuers lost lots of money on these deals. They simply wanted to punch us in the face with this one.

Cash rebate temptation – Card issuers also became over generous with their offers. They began offering too good to be true terms for their cash back credit card offers. They offered generous 5% terms for expenses like gasoline, supermarket and drugstore spending. But the problem was that consumers were smart. They used only these cards for stuff that paid them 5%. Because there was no annual fee on these cards and and consumers paid in full, these cards were not profitable at all. Here are some example of cards that saw that rebate payouts decline.

Citi Dividend Card

  • 5% on gasoline, supermarket and drugstore. 1% on everything else. cap at $300 in rebates you can earn.
  • 5% then became 2%
  • Citi DIvidend was discontinued a year ago!
  • Now Citi has Cash Returns card paying 1% rebate for everything you spend on the card!

Chase Rebate Cards

  • Chase Cash Plus – same as Cit Dividend – 5% on gasoline, supermarket and drugstore. 1% on everything else. $300 cap on rebates you can earn.
  • Became 3% rebates instead of 5%.
  • Discontinued card and launched Chase Freedom with 3% rebates.
  • Chase Freedom now only pays 1% rebates but 3% on “rotating categories”.

But we consumers did not just take advantage of the cash back credit cards, we took advantage of the gas credit cards that issuers came up with. Lots of them offered 5% rebates on gasoline at any station. So guess what we did? We used gas cards only for gasoline. We earned 5%, paid no annual fee, paid in full. All the credit card issuers wanted to do was to punch us in the face because even earning 2% from merchants did not cover up the 5% they were paying us.

These days, many of these perks have been scaled back massively. But with the financial crisis hitting us, credit card issuers did many things that really made us want to punch them in the face.

They lowered our credit limits – Credit card issuers have lowered the limits of many consumers. Lowering credit limits for late payment is one thing. I can even accept lowering the limits if you have not used your cards for ages. But lowering them below your present balance and charging an over the limit fee? That really makes me want to punch credit card issuers in the face. Here is a very recent comment I got on my blog!

They increased their interest rates – Credit card issuers have increased interest rates of many folks. Some have even got rates as high as 29%. If that is not loan sharking, what is? If you have been late for your payments, I could perhaps understand this. But issuers have raised rates across the board for almost everyone. I do not carry a balance, so I don’t care. But for folks who do, see their interest rate rise could mean doubling of minimum payments. There are many folks looking to punch these credit card issuers in the face.

Increasing minimum payments on balance transfer deals – Since many are stuck offering silly 0% deals, they are trying to recoup by increasing the minimum payments. So rather than paying 1% or 2% of your balance, some credit card issuers like Chase have increased minimum payment for some folks to 5%. That easily more than doubles someone’s minimum payment.

Don’t let them punch you in the face

Here’s a few tips for being ahead of the credit card issuers.

  • always pay on time
  • use all your cards even if it is on a pack of chewing gums
  • do not carry any credit card debt – if you do, get rid of it asap
  • set up autopay so that there can be no excuses for any late payment
  • if you only rely on your business credit cards for your credit lines, get some lines from your local bank
  • if issuers are stupid enough to offer great deals, take advantage of it because they may not last forever!

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