Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, May 2, 1993 TAG: 9304300432
SECTION: BUSINESS PAGE: C-6 EDITION: METRO
SOURCE: The Washington Post
DATELINE: WASHINGTON LENGTH: Medium
After a decade of seeming immunity from both interest rate fluctuations and cries from public officials and consumer groups, "plastic" has gone from a take-it-or-leave-it market, in which issuers set terms and made them stick, to one in which issuers are going to unprecedented lengths to keep current customers and sign up new ones.
As a result, credit-card interest rates have fallen to the lowest levels ever.
And consumers are taking advantage. A study for the General Accounting Office by Ram Research Corp., a publishing and research firm in Frederick, Md., found that fewer than half - 42.9 percent - of cardholders continued to pay more than 18 percent last year, down from 68.9 percent two years earlier.
In addition, a whopping 38.9 percent paid less than 16.5 percent interest on their cards, up from 9.3 percent in 1990.
Even the big issuers, such as Citibank and Chase, have caved in to marketplace pressure. And a number of issuers are now offering rates well down into single digits - lower than mortgage rates were only a couple of years ago.
The key factor in this transformation has been the entry of a lot of "nontraditional issuers" into the market, said Gerri Detweiler of Bankcard Holders of America, a consumer group based in Herndon.
The new players, which include AT&T and General Motors Corp., "don't just have an interest in running a successful card program. They want to build relationships with their cardholders. For that reason they can offer better deals," Detweiler said.
"This has really forced traditional issuers to re-evaluate their programs and become more competitive," she said.
At the same time, increased public attention paid to credit-card rates - such as then-President Bush's call for lower rates two years ago - along with falling rates on other loans and the end of the income-tax deduction for personal interest, all have combined to make consumers focus on the costs of plastic.
"Consumers finally woke up and said, "Why am I paying that?' " Detweiler said.
As a result, there are cards on the market with rates as low as 6.9 percent, according to Ram Research, and 10 others with single-digit rates.
"If you are still paying 19.8 percent, [either] you're unthinking - or you have serious credit problems," said Robert B. McKinley, head of Ram Research.
Like the decline in mortgage interest rates, the credit-card rate plunge has put more money in consumers' pockets. According to one economic study, the 2 percentage-point drop in card rates put $7 billion in additional discretionary income in consumers' hands over the past two years, generating an additional $2.8 billion in retail sales.
In addition to low rates, the market is overflowing with what card issuers call "enhancements" - whistles and bells designed to attract customers interested in certain products or services.
Some cards promise extended warranties on items purchased with them and in some cases to replace them if lost or stolen.
Others offer what are known as "affinity" deals in which the card proclaims its holder's support for some institution or cause. In most cases, the issuer also promises to donate a percentage of each purchase to the cause or institution in question.
But now these deals have grown to include rebates on certain products - such as GM's card, which allows holders to run up discounts on cars - frequent-flyer miles and other deals that in some cases can mean real money to the cardholder.
"If you charge a lot, those rebates tend to be very good deals," said Detweiler.
However, she cautioned that since they are usually restricted to certain products and companies, you need to be certain they are what you want. For instance, are you sure that your next car will be a GM model? If so, then the card may be a good idea.
Otherwise, Detweiler advised getting the cheapest card you can find and shopping for your goods and services separately.
If you're looking for a very low rate card, Bankcard Holders recommends that you be aware of what issuers are looking for. Many such cards have minimum income requirements, and insist that your debt-to-income ratio - the portion of your income that is going to debts, including rent or mortgage - be no more than 35 percent to 45 percent of your pretax income.
They are likely to want you to have lived in the same city or area for at least two years and to have worked for the same employer for two years. They will do a credit check on you too, through one of the big credit agencies.
Bankcard Holders recommends that when you find a card that looks good, call the issuer and go over their requirements. If you don't qualify, don't apply, because your credit record may reflect a lot of credit applications and that could look suspicious to other issuers when they check your credit record.
by CNB