Category: Credit Cards

Millions of consumers will likely turn to credit cards to cover at least some of their holiday shopping expenses once again this year, but what will it ultimately cost them?

There are a number of factors for borrowers to consider when thinking about how to most effectively use their credit cards for holiday shopping, according to a report from Investopedia. For example, the higher their interest rate, the less money they should probably spend, with regard to spending totals that exceed the borrower's ability to pay the entire balance down in one billing cycle.

It may also make sense for consumers to look at the credit cards in their wallets that offer the most rewards, the report said. This can help to cut down the overall cost of borrowing, particularly if the rewards they earn come in the form of cash back, rather than airline miles or points.

Experts recommend that keeping spending on credit cards to a minimum will help consumers to stay in a strong position to reduce debt going forward.

While many consumers have made considerable efforts to reduce debt and more conscientiously handle their credit card debt and spending in recent months, more lenders are nowexpanding the value of their rewards offers in an effort to attract new borrowers.

Consumers who have strong credit ratings have likely seen the value of the rewards offers they receive in their mailboxes increase significantly over the past few months, as more of the nation's top credit card lenders compete to draw in new and more creditworthy borrowers, according to a report from the Baltimore Sun. One tactic many of these lenders are taking is to grant consumers a significant amount of rewards up-front – usually the equivalent of if they had spent thousands of dollars on their card – and then doubling that total once certain spending thresholds are reached.

Recent research by the marketing firm Synovate found that the value of these offers has been on the rise even as the number of rewards mailings sent to consumers has slipped between June and September, the report said. However, that may be because these most generous offers are only being made available to consumers who have FICO credit scores of between 750 and 850 – the best consumers can achieve. Many of these offers may also be available to consumers who have ratings of between 700 and 749, but they will also likely pay higher interest rates on the accounts than those whose credit ratings are top-notch.

Of course, these cards generally have higher interest rates than do accounts that come without rewards programs attached, and any consumers signing up for one may find that there is also an annual fee attached, the report said. For this reason, it may be a good idea for consumers to carefully review any lending agreements they may receive to make sure that an account will work for them. For example, if the size of their annual fee will be larger than the amount of rewards they would earn on their account given their normal spending habits, that account might end up costing them money every year.

In addition, it makes sense to check and make sure opening the account will be a good idea simply given the borrower's current financial situation.

Consumers seem to be more comfortable dealing with credit card debt once again these days, as the number of new cards issued to borrowers has grown significantly in the first eight months of the year.

Banks and retailers alike vastly expanded their credit card issuing efforts between January and August, leading to a surge in new accounts, according to the latest National Credit Trends Report from Equifax. In all, the number of new credit cards from banks grew 25 percent, jumping to 25.3 million from the 20.2 million in the same period last year. Meanwhile, those from retailers climbed 7 percent to a total of 21 million from last year's 19.7 million.

One reason for this might be that banks have dramatically increased issuing efforts where subprime borrowers are concerned, the report said. The number of bank credit cards issued to consumers with credit scores below 600 climbed 56 percent on a year-over-year basis.

Credit card borrowing is also expected to grow in the next month or so as consumers make a greater effort to wrap up their holiday shopping, and retailers will attempt to take advantage of this seasonal shift by offering more accounts.

In an effort to draw in more consumers, many of the nation's largest lenders are now increasing the rewards cardholders can earn for every dollar of credit card debt they take on during the holiday season.

Offers for rewards points and cash back credit cards are becoming more generous as the holidays approach, according to a report from USA Today. Increased competition for top borrowers coupled with consumers' tendency to spend more on their credit cards during the final months of the year has led many to incentivize more spending.

For example, Discover is boosting cash back rewards between 5 and 10 percent for shopping done at certain retailers through its ShopDiscover program, the report said. Meanwhile, American Express is giving out five times as many points for purchases made through certain retailers such as Apple and Target, as well as discounting the cost of rewards points redemption for certain items.

Often, consumers spend more on their credit cards during the holiday season than they should, making it difficult to reduce debt and increasing the problems they may have in paying their bills.

Though many consumers may have had issues dealing with their credit card debt in the past, that's not as much the case these days, and the vast majority are now satisfied with their lender.

Consumers are generally pleased with their credit card accounts these days, as just 12 percent reported that they feel as though a lender has treated them unfairly, according to the latest annual study from the Consumer Reports National Research Center. That's down from 14 percent last year and 22 percent in 2009.

In addition, lenders are now more willing to extend credit to prospective borrowers, the report said. This year, only 14 percent of those surveyed were denied a credit card, down from 24 percent last year.

However, 35 percent also noted that they have seen a new annual fee, higher interest rate, lower credit limit or restrictions on either redeeming or accruing rewards placed on their cards this year, the report said.

Changes such as these may make it difficult for consumers to reduce debt, particularly if they have a habit of carrying some of the balance they accrued over from one month to the next.

The rate at which consumers fell seriously behind on paying down their credit card debt rose for the first time in nearly two years during the third quarter.

The nationwide delinquency rate for credit cards that are 90 days or more behind on payments rose to 0.71 percent in the third quarter of the year, the first quarter-over-quarter increase observed since the final three months of 2009, according to the latest report from the credit monitoring bureau TransUnion. The reason for this increase is likely because lenders have once again begun expanding offers to consumers with subprime credit ratings.

"When more high-risk customers are opening cards and fewer low-risk consumers are doing so, it is inevitable that delinquency rates will increase," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "In one sense this is good news: those consumers who are most affected by the continuing tough economy are gaining better access to the credit 'breathing room' they need to make ends meet."

Continual drops in instances of both delinquency and default indicates more people are attempting to get out of debt, leading lenders to expand marketing efforts to all consumers.

Community groups worried about the effects of lending to subprime borrowers who are more likely to run into serious credit card debt are asking the federal government to look into a deal between two major credit card lenders.

A number of major community groups, led by the National Community Reinvestment Coalition, are asking the U.S. Office of the Comptroller of the Currency told delay approving Capital One Financial's proposed purchase of London-based HSBC's U.S. credit card business until public hearings can be held, according to a report from Dow Jones Newswires. They say that Capital One's efforts to extend credit to subprime borrowers unfairly targets those in low-income communities to take on debt they can't afford.

The NCRC also spearheaded a successful effort to get the Federal Reserve Board to hold public hearings over Capital One's acquisition of ING's U.S. online banking business earlier this year, the report said. As a result, Capital One agreed to invest $180 billion into low-income communities over the next decade.

Capital One, like all major U.S. lenders, is once again attempting to expand lending efforts as it has seen instances of delinquency and default drop considerably over the last year.

Many consumers across the country tend to take on more credit card debt as the holidays approach because of the high cost of buying gifts for their friends and family. And because of that, lenders are more actively trying to incentivize these purchases.

The value of rewards programs being offered by credit card lenders is increasing significantly as the holidays approach, according to a report from Reuters. For example, JPMorgan Chase and Citi are now both offering credit cards that grant new customers $200 cash back after they spend their first $500. Meanwhile, a new Bank of America offer grants consumers an 11 percent rebate for purchases, and several lenders are granting consumers 5 percent cash back for purchases on a rotating list of categories.

However, lenders are also making the top-notch offers more difficult to find on their websites, and some may actually require a web search to find, the report said. For this reason, it may be helpful for consumers to educate themselves on the highest value offers before heading to the site.

Consumers tend to increase credit card spending around the holidays because gift purchasing is often difficult to squeeze into a monthly budget. However, before spending too much, consumers should also have a plan on how they will get out of debt.

Millions of consumers who travel overseas might find it difficult to take on credit card debt in a growing number of foreign countries.

Almost every credit card ever issued in the U.S. stores its information on the familiar little magnetic strip on the back, but most countries have turned to a system that uses a microchip to hold user data, meaning it's growing increasingly difficult to complete a transaction with an American card overseas, according to a report from the Los Angeles Times. However, some U.S. lenders are now extending cards to some consumers – typically affluent borrowers or frequent travelers – that store information using both a magnetic strip and embedded microchip.

However, lenders in the U.S. are hesitant to roll out a full switch to the new system given the likelihood of adoption for mobile credit card purchases made with smartphones, the report said. Implementing a new system that would likely only be in use for a few years would be costly and ineffective.

The countries where the switch has been most common are located largely in Europe, Asia and Central America. The most difficult purchases for Americans are typically those made at automated kiosks.

In the month of September, the amount consumers were allowed to borrow on their credit cards grew once again as lenders continued to issue more new accounts.

The latest National Credit Trends Report from the credit monitoring bureau Equifax showed that the number of credit cards issued in September increased for both banks and retailers, and with those rates rose the amount of credit card debt consumers are allowed to take on, according to a report from the Wall Street Journal. The year-over-year increases are likely the result of improving rates of delinquency and default observed by all major lenders.

New bank-issued credit cards rose to a total of 21.6 million in September, up 25.3 percent over the same month last year, and private-label store-issued cards jumped 6.9 percent to 18.2 million, the report said. Meanwhile, credit lines on those new cards rose 25.4 percent to $83.3 billion for bank-issued accounts and 4.3 percent to $31.7 billion on store cards.

Most experts believe that greater consumer awareness of the issues associated with large amounts of credit card debt led to the decreased delinquency and default, as more shied away from borrowing and made increased efforts to pay down their balances.