Greg wrote to us and said that he’s in the market for a new credit card: “I canceled my Chase card because they raised my interest rate to 29.99% + prime. What credit card companies should I be looking at for a replacement card? What are their perks, their drawbacks?”
I spoke with Samir Kothari, the co-founder and vice president of products at BillShrink.com, to see what he thinks about the CARD Act and how it will change the credit card marketplace.
In realistic terms, what’s different now?
[Now it's] a level playing field in terms of regulatory restrictions. All major card issuers will have to abide by them or face penalties.
So the way I see it is you won’t be able to differentiate between cards based on compliance [as you could earlier this month], so then the decision about which card to apply for, or even if you should, comes down to some key fundamentals.
At BillShrink the primary distinction we make is whether you’re someone who carries a balance, and if you do, how much do you spend and pay [each month]. We try to get it down to a total cost of ownership number. Or, [for those who don't carry a balance,] which card has the best rewards program.
There’s going to be less differentiation on terms, so a consumer can then feel more confident about making an economic-oriented decision. That becomes the primary way to make your decision.
Is it possible to find a great card now?
Our thesis is that all credit card issuers were open about this hurting their bottom line, so they’ve just been pulling a bunch of levers – interest rate, fees, reward richness.
We’re hopeful that market forces work the way they’re supposed to, and credit card companies compete with each other for new business by putting out better and better products. What we saw in 2009 was everyone walking the same way, raising rates across the board.
Hopefully there’s now an opportunity for one or two issuers to say, “We want to gain market share, so we’re going to be aggressive and offer good terms.”
But based on the offers BillShrink tracks, that’s not happening so far.
Is it possible to get a good rewards card anymore?
In general, rewards programs that were fairly generous have started to shrink. 1.5% cash back is now 1.25% cash back. 5% back on every dollar spent on gas is now 2% back. The rewards are smaller for cards that have been out for a while.
At the same time, we’ve recently seen the introduction of new reward cards coming out with relatively generous reward program opportunities. They’re going after a high-end, premium market segment: people who have good credit scores, who are affluent, who are not carrying a balance. It’s a market American Express has had for a long time, and other carriers are starting to come after it. Most of these cards have an annual fee.
Do some housekeeping and find out exactly what’s in your wallet as far as terms. There are always changes, and as a function of that, the average person who has 3 or 4 cards and who knew at the time what those cards were about as far as interest, annual fee, and credit limit, no longer knows.
People don’t know if they should get a new card, and they may not even know which card they should be using of the ones they have now.
So before you go to a site like BillShrink do some housekeping. Know your spending habits. Make sure you understand exactly what you’ve got so far, because your card may have changed dramatically from when you first got it.