The Checkout

The Not-So-Rewarding Credit Card

If you're using a credit-card that offers a cash-back award and you don't pay it off in full every month, you may want to consider whether the card's worth keeping.

Why? Many of these cards have significantly boosted their interest rates in the past few months -- way more than other credit-cards, says Justin McHenry, research director for IndexCreditCards.com Credit Card Monitor, which tracks hundreds of credit cards.

"For people who don't carry a balance," the interest rate hike won't be a concern, McHenry said. But for those who do, "what you get back in cash may not make up the difference in what you will pay" in a higher interest rate. As a result, McHenry says, you may want to consider switching to a card that bears a lower interest rate.

McHenry said that within the past two months he's seen the average credit card interest rate take off. This week, the average interest rate for consumer credit cards without rewards increased to 13.8 percent, up from 12.6 percent in January. (Consumers with the very best credit are being charged an average 10.89 percent).

For consumer cards offering rewards, the current average APR (annual percentage rate) climbed to 15.18 percent this week, up from 13.64 percent in January. That's a considerably steeper increase than the half point rise made by the Federal Reserve this year, McHenry notes.

The one group that has bucked the interest-rate trend: small-business credit card customers. The average non-reward business credit card rate is 11.39 percent, barely up from the 11.33 percent that was charged at the beginning of the year, McHenry notes. It's a similar story with reward business cards, which have an average rate of 13.51 percent, up from 13.21 percent. One reason: increased competition for this customer who typically needs to have strong credit scores to qualify.

By  |  April 20, 2006; 6:48 AM ET Credit Issues
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Comments

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I think this is all common sense. I am receiving many credit card offers in the mail and the ones that offer rewards usually have higher APRs. Consumers need to use their heads and not fall for rewards if what they are paying in interest is going to kill those rewards. People also should shop around for a better deal if their current credit card significantly raised rates. My husband and I had a Mastercard for many many years, were never late with payments, and borrowed and repaid significant amounts. All of a sudden Mastercard raised our rate from 9.9% fixed to 17.9%! I don't know who was the genius behind this decision, but we immediately transferred our balance to a new credit card with 0% APR for a year and paid off the balance before introductory 0% APR expired. Did Mastercard really think that we were going to pay 17.9% APR and not do anything about it? And now they lost good customers because we are never coming back.

Posted by: Elle | April 20, 2006 1:08 PM

Elle, first, it wasn't Mastercard that raised your rate. It was the bank issuing the card with the Mastercard seal. Boycott the bank, not the card.

Second, "Customers need to use their heads and not fall for ....." is the response/reply to pretty much every subject started by Ms. Mayer. Unfortunately, society has a good number of people who don't use their heads and get in trouble for it (and some then go whining about it). Sometimes it takes a swift kick in the backside (via this blog) to remind people of that.

Posted by: Non-debtor | April 20, 2006 3:03 PM

well, OK, it was MBNA mastercard, but still, pretty stupid on their part to lose stable paying customers by being too greedy.

Posted by: Elle | April 20, 2006 3:52 PM

Why do you pay interest at all? You should be paying off your bill each month. Unless you're making some hefty purchases for a new home.

Posted by: No Balance | April 20, 2006 5:21 PM

No Balance, people have emergencies, like for example this month our waterheater, dryer, and HVAC, and both our cars broke down and all of these things needed costly repairs. Worse things happen to people too (like health conditions, job loss etc.) and no one is immune to bad things, including you. Don't judge and don't be condescending.

Posted by: Maria | April 21, 2006 9:47 AM

A friend filed bankruptcy recently after her credit card doubled her rate, then refused to work with her to settle her debt after she was temporarily laid off. The bankruptcy lawyer told her he was seeing more & more of banks refusing to work with customers. He stated that this is a concerted effort to force more people into bankruptcy so the banks can then take the existing bankruptcy laws back to Congress and claim that they still didn't work, as more people filed bankruptcy than ever before, and request to make it illegal for credit card debt to be listed on a bankruptcy. Has anyone else heard anything about this?

Posted by: LisaB | April 21, 2006 5:57 PM

Caroline-

Great posting! We have a related article on cash back credit cards that may be of interest to your readers here:

http://www.cardratings.com/cashbackcreditcardrewards.html

Keep up your great work on behalf on consumers...


Best Regards,
Curtis Arnold
Founder
U.S. Citizens for Fair Credit Card Terms, Inc.
http://www.cardratings.com
curtisarnold@cardratings.com
Phone: (501) 663-0314 x3
Fax: (501) 374-8887

Posted by: Curtis Arnold | April 21, 2006 6:30 PM

"well, OK, it was MBNA mastercard, but still, pretty stupid on their part to lose stable paying customers by being too greedy."


MBNA did the same thing to me last fall. My APR went from 5.9% fixed to a variable rate that was up to 16.9% when I made my last payment this spring. (Of course the APR gradually got larger as I paid down the balance, so that MBNA always made the same amount of interest each month.)

The man I spoke with at MBNA just laughed and told me to deal with it when I called to complain. Supposedly MBNA sent me a letter that I could have used to avoid the change to my terms, but I never received it. I was an MBNA customer for 12 years, but I guess that the profits to be made on short term rate hikes are much more important to the company than long term business.

Why isn't this kind of practice considered predatory lending? Ever since the consumer bankruptcy protection bill passed last year, it seems that a whole slew of sneaky lending practices are suddenly legal.

Posted by: LK | April 25, 2006 9:51 AM

I had Chase double my interest rate and take 1000 dollars off my card limit because I missed a payment. I called them 4 days before it was due because a check bounced from a customer and it was all I could do to cover it. They said no problem on the phone, 6 days later I paid them over the phone to find out my payment that month doubled and the next statement show a doubled interst rate. I called them and they refused to make any adjustments to the interst and said I'd have to pay perfectly for a 1.5 years. I have maby made 3 late payments in 5 years. I stoped paying them and they still refuse to do anyting but tell me to deal with it.
I'm a sole propritor and if it didn't scare me that they may be able to latch on to something I'd probally continue to not pay them. If I did to my customers what theas people do to thiers I'd be Way Out Of Business.
sonic149@juno.com

Posted by: Sonic | May 1, 2006 11:42 PM

MNBA did the same thing to us - the card started out at 5.9% in 2003. We have good credit and pay bills. A late payment was recorded and we disputed. They would not waive the fee. Two months later, our interest rate is 27.99%!!!!!!!!!!
I called of course, talked to two different people, neither one cared. One lady told me we should have paid this balance off by now. Who is she to judge me? I agree - there are reasons people do not pay off their cards in full but we should not be penalized because we do pay our bills each month including the credit card payment. Rediculous. We're looking into a home equity loan now and hopefully never need another credit card again.

Posted by: Kathe | July 15, 2006 1:18 PM

Both Citibank and American Express gave me the same answer when I applied for a credit card. Declined. Because I had filed for bankruptcy 15 years ago, they
are declining to give me an new credit card
account. This is suprising because I have
accounts with citibank now. Just now a credit card account. They both said their policy is to not issue a credit card account to someone who filed bankruptcy with them.

Is this something new? It is kind of scary. Neither company was remotely interested in appealing or reviewing the applications.

Posted by: Cliff | August 29, 2006 1:34 PM

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