Credit Card Companies Are Changing the Way They Do Business

As the credit card reform act kicks in and defaults and bankruptcies rise to record levels the credit card companies are finding ways in which to reinvent themselves as quickly as they possibly can.

For starters we are not going to see too many more fixed rate credit card offers. This is in response to one of the provisions in the reform act which states that the credit card issuer must give ample written notice to the cardholder before raising their rate.

Because veriable rate credit cards are tied to the prime rate plus a few percentage points the credit card companies now will simply wait for the prime rate to go up which will automatically increase the cardholders interest rate.

Of course that door swings both ways. If the Fed lowers the prime rate then the variable rate on the credit card balance will also go lower. But as it stands now, interest rates are very favorable and will only go up as the economy improves. That’s a winning scenario for the credit card companies.

Some other changes we are going to see include a scaling back on rewards programs. Either the rewards programs themselves will be cut or reduced dramatically, or it will be much more difficult to earn them.

Rewards programs are typically seen as very attractive by potential cardholders so it is very unlikely that they will be eliminated altogether. They will however, not be anywhere near as generous as they have been in previous years.

We’re going to see a lot less balance transfers too. The credit card companies are very reticent on taking on new debt because of record default rates. For those credit card issuers that do offer balance transfers the fees will no doubt be higher than they have been.

It really isn’t surprising to see these adjustments in the credit card industry. And you can bet that the ones mentioned here will not be the last by any means. It is a very fluid situation and we here at will keep you posted every step of the way.

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