Wooing the wealthy: credit card companies broadening rewards
April 12, 2011
In the wake of new federal regulations on those annoying credit card fees and penalties, credit card companies are focusing their efforts on getting their best credit cards into the hands of wealthy consumers who like to spend money and pay their bills on time.
Left in the dust are those with questionable credit. They face higher interest rates, lower credit limits and annual fees for cards that just last year didn't carry any.
Thanks to the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, credit card companies can't raise rates on existing balances, can't bump the interest rate on your card during the first year and can't charge more than $25 in penalties when you're late with a payment. Each monthly statement also has to explain just how much it costs you in interest if you continue making only minimum payments on your card balance.
All these regulations have cost the credit card companies money. According to the Associated Press, that lost revenue, combined with being forced in 2009 to write off a record $83.27 billion in credit card debt, has prompted the credit card industry to cut the amount of available credit to $1.5 trillion--a third of what it offered in 2007.
And the best rates go to…
Consequently, credit card companies are offering their best credit card rates only to the best customers. People with excellent credit scores--earned by paying their bills on time and not letting their credit balances nudge up against their credit limits--can expect a multitude of offers. These may include:
- Rewards at five times the standard rate, such as those being offered by a new premium card from Bank of America.
- Annual fees waived when you keep a certain, large amount of money in your bank. For the Bank of America card, that certain, large amount is $50,000.
- Zero percent interest for up to 18 months on balance transfers and zero percent interest for up to 12 months on new purchases.
- No foreign transaction fees, which really annoy wealthy people, who like to travel abroad. American Express, Chase and Citi are all getting rid of those fees for their wealthy clients, the Associated Press reported.
And if your credit isn't so stellar?
If your credit score is just so-so--as a result of making an occasional late payment, or having your credit card balance be close to your max--you will still be able to get credit cards, but you'll typically pay higher interest rates.
You'll also likely pay an annual fee of $39 to $59, even though the same card a year ago didn't charge any annual fee. According to AP, the average interest rate on credit cards for this group is 22.57 percent, up from 19 percent a year ago. If your credit score is really shaky, you may find yourself looking at a secured credit card, which may have activation fees and require deposits.
Other credit card lures
Some banks are using other strategies, such as rewarding customers for making on-time payments. TD Bank, for instance, lowers the interest rate on card balances when customers make a timely payment. According to the daily American Banker newsletter, TD Bank gives customers who pay 10 percent of their balance 50 percent off their finance charge that month.
Capital One has something similar. Its Journey Student Rewards Visa rewards young consumers for on-time payments with 1 percent cash back on purchases and a 25 percent cash back reward each month for an on-time payment.