Jewish World Review May 1, 2001 / 8 Iyar, 5761
http://www.jewishworldreview.com -- IT'S that time of year when birds sing, grass sprouts and credit card offers rain down on consumers.
Robert McKinley refers to the spring blitz by credit card companies as "the May marketing war."
"For some reason, consumers tend to be in a mood to sign up for new credit card offers in the spring," said McKinley, chief executive of CardWeb.com, which tracks credit card rates on the Internet.
Never mind that the typical household that uses plastic has six to 12 cards. More than 500 million cards are in use nationally, and credit card debt more than doubled in the 1990s - from $2,985 per household in 1990 to $8,123 in 2000.
But the Federal Reserve's interest-rate cuts have led to lower rates on variable-rate cards and injected new life into a saturated credit card market. And each spring the credit card offers look a little sweeter.
In 1999, the hot introductory rate was 2.9 percent. In 2000, it was 1.9 percent. This year? Zero.
"There are a lot of zero percent rates floating around in the marketplace," McKinley said. "Any time you can get a free ride for six to nine months is a very good deal."
But the credit card marketplace is more complicated than ever, and consumers shouldn't judge cards on interest rates alone. Many come loaded with fees, and it's important to read the fine print.
On zero-rate cards, for example, the consumer needs to know how long the low rate lasts, what the permanent rate will be, how it's computed and what fees are charged.
Consumer Action, a California nonprofit group, said it found "ample evidence of rising credit card costs and anti-consumer practices" in its annual credit card report, released in March. The survey included 109 cards issued by 45 companies.
Linda Sherry, Consumer Action's editorial director, said even people who send in their payments well ahead of time are getting hit with late fees. And while it's possible to reverse those fees, it's annoying for customers to have to do so, she said.
While consumer debt on credit cards has increased, more people are paying off their credit cards every month - 42 percent, compared with 29 percent in the 1990s.
But even though most people have cards, card issuers are still appealing to the best customers - those with good incomes and solid credit records - by offering them perks and specialty cards.
At the same time, they're going after lesser-tapped markets: college students, for example, and people with less-than-sterling credit histories. Here is a sampling of what's out there:
-·College students: Companies pitch their cards to students as a way to establish credit. "They want to be the first card in the wallet," McKinley said. "They're hoping it'll blossom into a more profitable relationship down the road."
Students have dozens of credit cards to choose from, but student cards aren't always good deals, McKinley said. A Visa card marketed to University of Minnesota athletes has a 2.9 percent rate for six months and a 16.4 percent variable rate after that, but a huge 19.99 percent rate on cash withdrawals.
McKinley suggested that students look into getting cards at banks where they or their parents already have accounts to see what kind of deal they can get there before applying for a card marketed to collegians.
-·High school students: They can receive cards with prepaid balances. They're not actual credit cards, so they won't create a credit record for the teenagers. Parents set up the accounts and deposit money in them, as much as $1,000. The teen uses the card - sometimes for Internet buying - until the money is used up.
"Some of the consumer groups are saying putting plastic in the hands of a teenager is not a good thing," McKinley said. "I'm not sure I agree with that, because it's not a credit device at all. ...It's just simply a convenience."
-·The subprime market: This is the industry's name for people with low incomes and bad credit who want credit cards. With incomes as low as $8,000 a year they can get cards, but the credit limit is minimal and the fees are substantial.
"Those cards tend to be very expensive, and some of them are just the most horrible deals you could imagine," Sherry said. In the past, people with bad credit have put down a deposit that guarantees the card. Now some cards are available without security deposits, and they can charge as much as $300 in fees the first year, Sherry said. "Sometimes the fee is almost equal to the credit line."
-·Store customers: People who pay off their credit card balances every month can get cards with higher permanent interest rates but which offer points or rebates toward future purchases. Among the retailers offering reward cards are Borders, Barnes & Noble, Kids "R" Us, eBay and CompuServe.
-·Philanthropists: Some cards let you support your favorite cause: the National Geographic Society, for example. Donations from these cards generally are one-quarter or one-half of 1 percent of each purchase, so with a $100 purchase, you'll be donating from 25 to 50 cents. But if the cards use the two-cycle billing system, you may be paying more in interest than you're donating. Interest charges are less with the average daily balance method, which most cards use.
-·Sports fans: This is a thriving market. You can show your loyalty to your favorite professional team whenever you use your credit card. Every major team in the country has a card. They start with introductory rates of 4 to 7 percent and then go up to 14 or even 16 percent. They generally don't include perks, but with a National Football League card, you get free admission to the Football Hall of Fame in Canton, Ohio.
Comparison shopping on cards can be done on the Internet, where
voluminous information is available - and in larger print than in the
Donna Halvorsen writes for the Minneapolis-St. Paul Star Tribune. Comment by clicking here.