I think consumers deserve a T-shirt that says: I survived 2011.
Even if you emerged from 2011 financially bruised and in debt, you’re alive and kicking. And you have reason to be optimistic because I think that 2012 will be a better year for consumers than 2011.
Now, we’re not back to having a robust economy, but I see signs that I like. During the last part of 2011, credit became more available as banks started testing the waters in the new economy. And credit card issuers started sending out offers with pretty amazing bonuses and perks.
Here are six trends that I see for 2012:
#1: Sign-up bonuses aren’t slowing down
Credit card issuers are competing with each other for the best consumers. Cash bonuses are up to $200 if you spend a certain amount in three months or so. Some airline cards only require you to buy a purchase (even a pack of gum will do) to get enough points for a free ticket.
As consumers start spending again, credit card issuers will continue to compete for your business. These sign-up bonuses aren’t going anywhere and will even possibly get better.
I know that the first credit card that offers a sign-up bonus that includes a personal chef for a month gets my business. Is that too much to ask? Come on, banks. Get a little creative.
#2: Credit will be easier to get
During the recession, it was tough to get a credit card or a personal loan at decent rates (if at all) unless you had a really good credit history. Now that scores for many consumers are rising a little, banks are ready for your business.
For those with excellent credit, expect to have an easier time getting a credit limit increase. This can be a very good thing for your credit score as long as you don’t go on a spending spree. Your credit score gets a boost when you have a low utilization ratio (the amount of credit used compared to the amount of credit you have available). So if you get a limit increase keep your spending level the same. You might see your score get even better.
#3: Credit card use will continue to rise
A big part of the reason is because consumers who got shut out of credit in the midst of the recession are now being invited to apply for cards again. And many who had simply cut back their spending are breaking out the plastic again. But remember this: If you’ve been on a strict budget due to a job loss or other money disaster, be sure you ease back in slowly. Track your spending and create a budget that fits your current needs.
The cap in debit card interchange fees will also spur the use of credit cards in 2012. Banks may have backed off the debit card fees for a while, but they’ll make up the lost revenue in other sneaky ways. The result will drive consumers away from debit cards and toward their credit cards.
#4: Consumers with less-than-perfect credit are welcomed back
The terms will be better than a year ago, but also expect predatory lenders to be on the prowl. Consumers who have credit scores under 600 need to be especially cautious and read the fine print. I mean really read it—maybe even three times. The average interest rate on a credit card for those with bad credit is 24.96 percent. But I’ve seen rates up to almost 50 percent for those with bad credit. Just be careful out there.
Now, if you’ve got fair credit (650-699) here’s what I want you to watch out for: the APR range on a credit card offer. For instance, the offer might show the rate ranges from 11.99 to 21.99 percent. You could end up on the high end. But if you don’t carry a balance, it’s a good opportunity to get a card with a major issuer and improve your credit score.
I’ve already seen a few issuers raise the high end (say, from 20.99 to 21.99 percent) of the APR range on new offers. They’re doing this to minimize their risk if they offer a card to someone with a credit score that’s a little lower than what they’re comfortable with.
#5: Balance transfer offers will be abundant
Credit cards that offer zero percent introductory APRs on balance transfers aren’t new. But with people starting to recover from the recession, credit card issuers see a market for those who need to rid themselves of recession-induced debt.
The longest intro period right now is 21 months. Perhaps we’ll see 24 months or more at some point. It hasn’t been that long since Discover once offered a 24-month intro period, so it’s not unheard of.
And what about those pesky transfer fees that can cost you from 3 to 5 percent of the balance? I don’t see a massive waiver of this fee, but I think you’ll see banks get rid of it for a limited time on a few selected cards.
For instance, right now, Slate from Chase and the Discover More Card have waived the fee that accompanies balance transfers. Here’s how it works in credit card world: One issuer throws down the gauntlet and usually the others take up the challenge and match it. But hey, the competition is good for consumers.
#6: Technology rules the future
I’ve said before that credit cards (the plastic version) aren’t going anywhere any time soon. I still believe that. But I also believe the push for smart phone payments will be big this year.
The reason we’ll still have plastic is because people don’t change quickly. Yes, we’ll keep seeing stories titled, “Credit cards are becoming extinct.” It’s a great headline. But we’re only at the start of a major change in the way we pay for items.
I actually like the idea of paying with my smart phone. But I’m waiting to make sure the kinks (read: security issues) are worked out before I totally embrace it.
At the same time we’re seeing a push for payments via smart phones, we’re seeing a trend to convert to chip-and-PIN credit cards. These type of cards are widely used in Europe. Merchants in the U.S. have resisted it primarily due to the cost of replacing current payment systems. With a chip-and-PIN card (also known as E.M.V. cards, which stands for Europay, Mastercard and Visa), there’s a “smart” chip in it. You enter a PIN to complete the purchase and this adds a layer of security.
A few issuers, such as Chase and Wells Fargo, have offered select cards with smart chips but there’s an awful long way to go. Visa is doing its part to move things along by offering an incentive to merchants if they upgrade their payment systems. By doing so, merchants will avoid certain security reviews. But if they don’t adopt the new technology, merchants will become more liable for the costs of credit card fraud starting in 2015. That’s a pretty good incentive and since it’s only three years away, I think will see some movement toward the chip-and-PIN cards in 2012.
Image: Templar1307, via Flickr.com