The average credit card could look quite a bit different in 2011. A host of changes, including a slowly recovering economy, increases in consumer spending, and a new regulatory landscape, could alter the credit card deals available to millions of Americans.
Here’s a look at the trends that may affect you if you find yourself looking for a new credit card this year.
– Higher Rates. Under the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, card companies are barred from increasing the interest rate of new cards within the first year, and limits issuers’ ability to raise rates after that. Many issuers are responding by increasing their rates up-front. The average interest rate on credit cards has dropped from 12.06% in 2005 to 10.71% in August of 2010, according to the latest report by the Federal Reserve, meaning there may be nowhere to go but up.
– Better Introductory Offers. The flip-side of higher interest rates for most people is that, for people lucky enough to have excellent credit, they will be able to find new credit cards with great “teaser” deals. According to our recent interview with Anuj Shahani, director of competitive tracking services for Synovate, a number of credit card companies are offering zero interest for up to 36 months for new cardholders. “The issuers really want you to sign up for a new card, and then use it,” Shahani says.
– Better Rewards. Many new cards also will try to lure new customers with more rewards points. Consumers who get new Chase Freedom cards will receive 10% cash back on some purchases, plus an additional $100 cash back after spending their first $500. Discover More cards offer a similar $100 cash-back deal, plus up to 20% cash back on some online purchase.
– More Prepaid Cards. Credit card companies are actively pushing more people to consider prepaid debit cards, which don’t fall under the protections of the Dodd-Frank financial reform law. And it appears to be working. The amount of money loaded onto prepaid cards will grow from $36.6 billion in 2012 to $118.5 billion in 2012, according to a report by Mercator Advisory Group. It could reach $840 billion by 2017, according to MasterCard. That expansion already is bringing more diversity among prepaid cards, with some like RushCard offering relatively high fees and a host of consumer services, while others like Mango offer low fees.
– More debt. Credit card debt fell in October for the 26th consecutive month, according to the latest report by the Federal Reserve. That’s likely to reverse course, many experts say, especially as banks and credit card issuers gradually begin to loosen credit requirements.