Credit Card issuers, eager to lure new customers,
offer competitive low introductory interest rates, allowing card–hoppers
take advantage by transferring their balances to a new introductory deal when
the prior deal expires. Several credit card
issuers have rolled out policies in order to discourage card–hopping by either
charging a fee for balance transfers or getting rid of low introductory teaser
rates on balance transfers. Card issuers are jacking up back–end fees and
pumping up punitive interest rates. Tactics include the use of the two–cycle
interest calculation method, the use of a daily periodic rate to compound interest
charges, shortening of grace periods, and the creation of new fees.
According to the upcoming January issue of CardTrak (www.cardtrak.com), credit card fee income has grown 79% over the past two years while interest income has only increased by 9.8%. The growth in fee income is linked to higher late fees and over–limit fees. According to CardData (www.carddata.com) late payment fees have soared 58% over the past 24 months, from an average of $13.88 to $21.94. Among the top ten issuers late payment fees now average $26.10, and over–limit fees now average $25.70. Some issuers are imposing fees for closing an account, not using an account for at least six months and for customer service. Grace periods have been slowly shrinking from 25–30 days to 20–25 days over the past three years.
Card–hopping not only contributes to this negative trend in the industry,
it also damages the card–hoppers' credit rating. Rate–shopping creates
extra inquiries to the consumer's credit history and makes the consumer look
like he/she is desperate for credit. When a new account is approved, your credit
suffers because lenders see higher potential debt.
Even if the card–hopper closes the older account, this also counts negatively
on the credit rating because the length of accounts held is an important factor
in risk scores. This can be particularly damaging if the account you closed is
a long–term credit reference.
Credit Card consumers should be aware of how credit issuers punish disloyalty
as well as consider the harm to their own credit
rating when rate–shopping. Despite the negative trend toward greater
fees, the positive is that credit issuers are also working harder to retain customers.
It used to be consumers would have to call and negotiate a better deal by threatening
to cancel their account. Now, when customers call to close an account, they may
get a better offer without asking for it as encouragement to stay.
