Five years ago, credit-card issuers warned that low annual percentage rates (APR) and generous credit-card offers would disappear forever as a consequence of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009.
Those threats turned out to be “baseless,” says Linda Sherry of Consumer Action, which is a consumer credit advocacy organization.
The CARD Act curbed the capability of credit-card issuers to profit by unexpectedly increasing APRs and charging excessive penalty fees. Credit-card issuers tightened credit requirements after the CARD Act went into effect on Feb. 22, 2010, and for 2 years, it was difficult to find (and qualify for) credit cards that had low APRs and generous rewards, says Alex Matjanec of MyBankTracker.com, which is an independent consumer banking resource.
That changed. As the economy improved, the competition between credit-card issuers increased and credit-score requirements loosened, says Dan Ray, who is the editor in chief of CreditCards.com, which is a comparison website. Consequently, today’s credit-card offers are more generous than ever before, he says.
However, a big catch exists. Today, you must have an “excellent” credit score (read: 740 or above) to qualify for the best credit-card offers. (All major credit-card issuers in the United States use FICO scores, which are calculated from your credit data and range from 300 to 850.) That’s a slight improvement from a year ago, when a consumer had to have a 750 credit score to qualify for the best offers, Sherry says.
If you have a credit score of between 700 and 739, which is considered to be “good,” you still can take advantage of today’s generous credit-card offers, but you probably will have to pay a price, such as an annual fee (as low as $19 but as high as $450 depending on the rewards program). You likely also will pay a higher APR than would a consumer who has “excellent” credit, and you won’t be eligible for the credit cards that have the best introductory bonuses.
Still, “good” credit is preferable to having a credit score of 699 or below. In that case, an “average” or “fair” credit score will leave consumers unable to qualify for most credit cards. If you qualify, you’ll pay an annual fee and a high APR for a card that has no bonuses and no rewards.
GOTCHA GAMES. The CARD Act limited the capability of credit-card issuers to charge excessive APRs and penalty fees, so credit-card issuers invented new types of fees. When we wrote about the CARD Act in “The Fine Print: Why Credit-Card Reform Comes Up Way Short” in our November/December 2009 issue, we noted that some credit-card issuers instituted annual fees of $20–$30 to help to compensate for the revenue that they would lose, because they no longer could charge excessive penalty fees. Unsurprisingly, those annual fees increased since then. The average annual fee in 2012 was $113, compared with $80 in 2010, according to Ipsos, which is a research company.
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What’s good news is that in our evaluation of the 156 current credit cards from the 12 major credit-card issuers, we found that 93 cards (60 percent) have no annual fee. Of course, you typically must have excellent credit to qualify for a no-annual-fee card. If you merely have good credit, you likely will qualify for one of the 26 cards that we found that has no annual fee for the first year but an annual fee (typically $95) for each subsequent year.
Speaking of introductory offers, Sherry tells us that she expects to see more credit cards dangle a zero percent introductory APR in the next 2 years. Zero percent rates were a common introductory enticement as recently as 2008, but the CARD Act mandated that introductory APRs must last a minimum of 6 months before they increase.