Credit Card Companies On The Hunt For Profitability

The days of freewheeling credit card spending is definitely over. The economic recession saw to that. The upcoming Credit CARD (Card Accountability, Responsibility and Disclosure) Act is going to see to it that it stays that way.

The Credit CARD Act is designed specifically to protect consumers from the more predatory practices of credit card companies. CEO of LowCards.com, Bill Hardekopf gives one good example of how the Act will accomplish this. Come February, once a credit card has been approved, the credit card company will not be able to raise the interest rate for one year in most cases, he said. There is an exception: if payment is late for more than 60 days, then the credit card issuer may raise the interest rate. After the one year period, the credit card company can then raise the interest rate of the card. However, the new interest rate will only be applicable to new transactions.

There are several other changes that the Credit CARD Act will bring which will limit the ability of credit card companies to raise interests on existing credit cards. Consumer Action deputy director of national priorities Ruth Susswein said that card issuers are therefore likely to raise the interest rates on credit cards during the months before the activation of the Act as a result.

Due to these many changes and their effect on profitability, credit card companies are busy changing their business practices to compensate. If many of these changes are not very sensitive to the current plight of credit card holders, what with the ongoing economic depression, credit card companies don’t seem to consider that of much concern at the moment. Adam Levin, cofounder of Credit.com and currently its chairman said, “We’re not seeing kinder, gentler credit card companies right now”.

Credit card companies these days are busy dropping existing credit lines on some cards, outright canceling credit cards and raising the rates for their minimum monthly payments. A few companies have raised their minimum monthly payment rates from 2% to 5%, a jump of 3 percentage points. This means that, for a balance of $10,000, the minimum monthly payment will be $500 instead of $200.

“They want more of their money back faster”, Credit.com president John Ulzheimer said.

Aside from wanting their money back faster, credit card companies are also holding on tighter to it. According to credit card experts, consumers who have credit scores that are in the 650 range are having a harder time getting great credit card deals than they used to get in the past. Nowadays, a credit card holder may need a credit score of around 750 or higher to get some decent treatment. Ulzheimer says that, now more than ever, good credit scores are going to be very important for consumers.